List of equations from Chapter 17

List of equations from Chapter 17 - Real interest rate =...

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List of equations from Chapter 17 1) Velocity: V= PY/ M Where P =price level = GDP deflator Y = output = real GDP PY = nominal GDP M = money stock or money supply 2) Quantity equation: M V = PY 3) Quantity equation in variations (approximation): Percentage change in M + Percentage change in V = Percentage change in P + Percentage change in Y Where: Percentage change in M is also called money growth rate Percentage change in P is also called inflation Percentage change in Y is also called economic growth rate or rate of growth of output (or real GDP) 4) Nominal and interest rates: Nominal interest rate = real interest rate + inflation
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Unformatted text preview: Real interest rate = nominal interest rate – inflation 5) Taxes and interest rates Let tax denote the tax rate. For example if the tax rate is 20%, then tax = 0.20; if the tax rate is 40%, then tax = 0.4. Then, After tax nominal interest rate = (1- tax) (before tax nominal interest rate) After tax real interest rate = (after tax nominal interest rate) – (inflation rate) 6) Fisher effect: the one-to-one adjustment between the nominal interest rate and the inflation rate. This is an application of money neutrality. It only applies to the long run....
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