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Ch 12:Money,Intrst & Inflation
Unit 4 - Foundations of Macroeconomics
10
Economics
Undergraduate 1
01/22/2008

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Term
Quantity of Money Demanded
Definition
The amount of money that households and firms choose to hold
Term
Demand for Money
Definition
The relationship between the quantity of money demanded and the nominal interest rate, when all other influences on the amount of money that people wish to hold to remain the same
Term
Supply of Money
Definition
The relationship between the quantity of money supplied and the nominal interest rate
Term
Quantity theory of money
Definition
The proposition that wehn real GDP equals potential GDPm an increase in the quantity of money brings an equal percentage increase in the price level
Term
Velocity of circulation
Definition
The number of times in a year that the average dollar of money gets used to buy the final goods and services
Term
Equation of Exchange
Definition

An equation that states that the quantity of money multiplied by the velocity of circulation equals the price level multiplied by real GDP

Term
Hyperinflation
Definition
Inflation at a rate that exceeds 50% per month
Term
Explain what determines the demand for money and how the demand for money and the supply of money determine the nominal interest rate
Definition
P.173
Term
Explain how in the long run, the quantity of money determines the price level and the money growth brings inflation
Definition
P.173
Term
Identify the cost of inflation and the benefits of a stable value of money
Definition
P.173
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