CHAPTER 19 SUMMARY: 1. Does the velocity of money refer to a speeding armored car filled with cash? The velocity of money refers to the number of times, on average, each dollar is spent during the course of a year. Each unit of currency is spent and respent many times each year. 2. Does a constant velocity of money mean that money is not moving or moving at a constant rate of speed? Neither. A constant velocity of money means that each unit of money gets spent at the same rate over time and does not fluctuate in the short-run. If this is the case, then a change in the money supply will cause a change in nominal GDP. 3. Are monetarists people that love money more than life itself? The answer is probably not. Strict monetarists claim that an increase in the money supply will not increase aggregate output and will, instead, only serve to cause inflation. Monetarists generally disdain the use of Keynesian stabilization policies and advocate a slow, steady growth rate of the money supply. 4. What are rational expectations and how realistic is it to think people have them?
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This note was uploaded on 09/14/2009 for the course ECON 304L taught by Professor Staff during the Fall '07 term at University of Texas.