Exam 17: Money Growth and Inflation: Part B

When the value of money is on the vertical axis,the money supply curve slopes upward because an increase in the value of money induces banks to create more money.

The quantity theory of money can explain hyperinflations but not moderate inflation.

If the money supply increased by 10% and at the same time velocity decreased by 10%,then according to the quantity equation there would be no change in the price level.

If the quantity of money demanded is greater than the quantity supplied,then the value of money rises.

An excess supply of money is eliminated by a decrease in the value of money.

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

If the Fed were to unexpectedly increase the money supply,creditors would gain at the expense of debtors.

The irrelevance of monetary changes for real variables is called monetary neutrality.Most economists accept monetary neutrality as a good description of the economy in the long run,but not the short run.

The classical dichotomy is useful for analyzing the economy because in the long run nominal variables are heavily influenced by developments in the monetary system,and real variables are not.

When the value of money is on the vertical axis,an increase in the price level shifts money demand to the right.

Hyperinflations are associated with governments printing money to finance expenditures.

Suppose the nominal interest rate is 5 percent,the tax rate on interest income is 30 percent,and the after-tax real interest rate is 0.8 percent.Then the inflation rate is 2.7 percent.

Shoeleather costs and menu costs are both costs of anticipated inflation.

In the 1990s,U.S.prices rose at about the same rate as in the 1970s.

If the quantity of money supplied is greater than the quantity demanded,then prices should fall.

Nominal GDP measures output of final goods and services in physical terms.

Jimmy Carter,Ronald Reagan,and Gerald Ford are all U.S.presidents whose political careers were helped by inflation.

If money demand shifts right,the price level falls.

Inflation induces people to spend more resources maintaining lower money holdings.The costs of doing this are called shoeleather costs.

If inflation is higher than expected,then borrowers make nominal interest payments that are less than they expected.