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ECON 11:14 - P = price level 1 p = value of money how much...

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P = price level 1/ p = value of money – how much 1 dollar allows you to buy - As the price level increases, the value of money decreases Having more inflation gives you more money, but it drives down the value money Quantity Theory of Money - in the real world M = {Cr + 1 / Cr + Rr} x B Where B is the money Base - The households control how much money is in circulation, since only the households can control how much they want to deposit In this model, we will assume the Fed precisely controls the MONEY SUPPLY (MS) - Monday demand depends negatively on the value of money - The higher the value of money, the lower the demand for money you want to have o The higher the price level, the more money you need to keep in your pocket to purchase these goods The increase in value of money decreases price level If the fed completely controls the MS, then it sets the quanity of money supplied equal to 1,000 (because I just print 1,000) this will make the MS completely vertical - Fed would be able to manipulate demand and supply -
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