Chapter 7 - The Asset Market, Money, and Prices Flashcards
Define money. How does the economist’s use of this term differ from its everyday meaning?
b
What are the three functions of money? How does each function contribute to a more smoothly operat- ing economy?
b
Who determines the nation’s money supply? Explain how the money supply could be expanded or reduced in an economy in which all money is in the form of currency.
b
What are the four characteristics of assets that are most important to holders of wealth? How does money compare with other assets for each characteristic?
v
Describe what is meant by the expectations theory of the term structure of interest rates. Why isn’t the expectations theory sufficient to describe the data on interest rates that we observe? What must be added to the expectations theory to form a more accurate theory?
v
List and discuss the macroeconomic variables that af- fect the aggregate demand for money.
b
Define velocity. Discuss the role of velocity in the quantity theory of money.
b
Why is equilibrium in the asset market described by the condition that real money supply equal real money demand? What aggregation assumption is needed to allow ignoring the markets for other assets?
b
What is the relationship between the price level and the nominal money supply? What is the relationship between inflation and the growth rate of the nominal money supply?
bb
Give an example of a factor that would increase the public’s expected rate of inflation. All else being equal, how would this increase in the expected infla- tion rate affect interest rates?
b
