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Unformatted text preview: 1. P level , pp pay more for G&S they buy. =>P level is measure of value of m. P level => lower value of my b.c each dollar buys a smaller Q of G&S. 2. Q of money => dollars more plentiful=> P level => each dollar less valuable. 3. Nominal variables measured in monetary units .real variables measured in physical units. Ex income of corn farmers is nominal variables: measured in dollars. Quantity of corn produced is real variables: measured in bushels. According to principle of monetary neutrality, Q of money affect NV not RV 4. G revenue by printing m => levy an inflation tax. B.c prints money, P level , dollars less valuable. inflation is like a tax on pp holding m. G high spending, inadequate tax revenue, printing dollars is the easiest way to pay for its spending. Massive Q of m leads to massive inflation. 5. According to the Fisher effect, inflation rate does not affect real interest rate b.c real interest rate is real variable. The nominal interest rate must...
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This note was uploaded on 06/20/2011 for the course ECON 123 taught by Professor Mrews during the Spring '11 term at Korea Advanced Institute of Science and Technology.
- Spring '11