Exam 17: Money Growth and Inflation

When the money market is drawn with the value of money on the vertical axis, the price level increases if

When the money market is drawn with the value of money on the vertical axis, as the price level decreases the quantity of money

Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent. This difference between actual and expected inflation

The nominal interest rate is 6 percent and the real interest rate is 2.5 percent. What is the inflation rate?

The value of money rises as the price level

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

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 supply of money is determined by

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

Shoeleather costs arise when higher inflation rates induce people to

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

When the money market is drawn with the value of money on the vertical axis,

Does an increase in the inflation rate increase or decrease the amount of money people choose to hold at any given price level? What would an increase in the inflation rate do to money demand? What would this change in money demand do to the price level?

Given that firms change their prices infrequently, a business that has just raised its price will have a __________ relative price; over time as its price remains fixed its relative price __________.

If a country experienced deflation, then

The value of money falls as the price level

Your grandfather tells you that his annual income increased at an average rate of eight percent over his lifetime. He complains, however, that the average inflation rate of three percent reduced his ability to buy all the things he could have purchased if inflation had been zero. You respectfully tell your grandfather that he is committing the _____, because his annual income would have increased at an average rate of only five percent if inflation had been zero.