Money Growth and Inflation Flashcards
What are nominal variables
They are variables measured in monetary units.
What are real variables
They are variables measured in physical units.
Dollar prices are nominal variables, and relative prices are real variables.
A. True
B. False
True
The real wage is measured in units of output.
A. True
B. False
True
What is classical dichotomy
It is the theoretical separation of nominal and real variables.
What is monetary neutrality
It is the proposition that changes in the money supply and doesn’t affect real variables.
In the short run, real variables are affected by developments in the economy’s monetary system.
A. True
B. False
True
In the long run, the quantity of money is largely irrelevant for understanding the determinants of important real variables.
A. True
B. False
True
The classical dichotomy is useful in analysing the economy because different forces influence real and nominal variables.
A. True
B. False
True
Changes in the supply of money, according to classical analysis affecting nominal variables but not real variables.
A. True
B. False
True
What is the quantity theory of money.
It is a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate.
The inflation rate is the percentage change in either the: CPI, GDP Deflator, or other index of the overall price level.
A. True
B. False
True
What is inflation
It is an increase in the overall level of prices.
What is Deflation
It is a fall in the overall level of prices.
What is Hyperinflation
It is a term to describe rapid, excessive, and out-of-control general price increases in an economy.
What is Disinflation
It is a temporary slowing of the pace of price inflation. The term is used to describe occasions when the inflation rate has reduced marginally over the short term.
Interest rate is the opportunity cost of holding money.
A. True
B. False
True
The interest rates play a key role in explaining short-run equilibrium in the money market.
A. True
B. False
True
The real interest rate corrects the nominal interest rate for the effect of inflation.
A. True
B. False
True
What is the quantity equation
It is the equation M×V=P×Y, which relates the quantity of money, the velocity of money, and the dollar value of the economy’s output of goods and services.
What is the inflation tax
It is the revenue the government raises by creating money.
What is the Fisher effect
It is the one-for-one adjustment of the nominal interest rate to the inflation rate.
What is the shoeleather costs
It is the resources wasted when inflation encourages people to reduce their money holdings.
What is menu costs
It is the costs of changing prices.
The quantity equation formula is:
M×V=P×Y
A. True
B. False
True
Governments that run large deficits can reduce the deficit by raising taxes.
A. True
B. False
True
When governments raise revenue by printing money, it is said to levy an inflation tax.
A. True
B. False
True
When the government prints money, the price level rises, and the dollars in your pocket are less valuable.
A. True
B. False
True
What is Seignorage
It is the revenue generated by the government’s right to print money.
