Chapter 12

# Chapter 12 - If P= 4 1/P = If P = 1 1/P= As the value price...

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If P= 4, 1/P = _____. If P = 1 1/P=________ As the value price level falls, the value of money_________ The supply of money is determined by the _________.

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MONEY GROWTH AND INFLATION 12 A Brief Look at the Adjustment Process How does this work? Short version: At the initial P , an increase in MS causes __________________of money. People get rid of their excess money by ____________it on ______ or by loaning it to others, who spend it. Result: increased _______ for goods. But supply of goods does not increase, so _______must rise. (Other things happen in the short run, which we will study in later chapters.) Result from graph: Increasing MS causes P to_____.
13 Real vs. Nominal Variables Nominal variables are measured in monetary units. Examples:__________ , ______________ (rate of return measured in \$) ____________ (\$ per hour worked) Real variables are measured in physical units. Examples:___________ , _____________ (measured in output) ____________ (measured in output) MONEY GROWTH AND INFLATION 14 Real vs. Nominal Variables Prices are normally measured in terms of money. Price of a compact disc: \$15/cd Price of a pepperoni pizza: \$10/pizza A relative price is the price of one good relative to (divided by) another: Relative price of CDs in terms of pizza: price of cd price of pizza \$15/cd \$10/pizza = Relative prices are measured in physical units, so they are real variables. = 1.5 pizzas per cd

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## This note was uploaded on 12/26/2010 for the course ECO 181 taught by Professor Cherry during the Fall '07 term at SUNY Buffalo.

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Chapter 12 - If P= 4 1/P = If P = 1 1/P= As the value price...

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