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Unformatted text preview: • Monetary neutrality: changes in M S affect nominal variable, but not real variables Velocity • Velocity: the rate at which money changes hands • Example: o Produce 2000 cups of hot chocolate/week o $2 per cup o $500 of currency in the economy • How many times must each dollar change hands for all the hot chocolate to be purchased Quantity Equation M x V = P x Y M = Money, V = velocity, P = Price, Y = Real GDP (P x Y = nominal GDP) • The growth rate of the product of two variables is (approximately) equal to the sum of the growth rates of the individual variables • Δ M/M + Δ V/V = Δ P/P + Δ Y/Y Page 262, Question 1 M = $50 B PY = $1 000 B Y = $500 B...
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- Spring '13
- Inflation, Quantity Theory of Money