Class_24_worksheet

Class_24_worksheet - Economics 101 P. Conway, Fall 2011...

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Economics 101 P. Conway, Fall 2011 In-class worksheet, Class 24 1. Velocity is a measure of the speed with which the money supply changes hands in transactions for final goods and services. When Raul lived in Argentina 30 years ago, inflation was over 200 percent per year. On the day he got paid, he went out and converted his peso earnings into US dollars. Then, when he needed to make a purchase, he converted US dollars into just enough pesos to complete the transaction. He still lives in Argentina, but now the inflation rate is 2 percent per year. He holds his pesos in his pocket or bank account year round. What caused his change in behavior? What does it imply for the velocity of money? The change in interest rate caused the change in his behavior. The velocity of money was very high in the high-inflation period because the opportunity cost of holding money is high. In the low-inflation period, the opportunity cost of holding onto money is low, so people save more and spend less AKA low velocity of
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This note was uploaded on 02/13/2012 for the course ECON 101 taught by Professor Balaban during the Fall '07 term at UNC.

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Class_24_worksheet - Economics 101 P. Conway, Fall 2011...

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