{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

ECON 11:14

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

This preview shows pages 1–2. Sign up to view the full content.

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 -

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern