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Unformatted text preview: Money Multiplier Amount deposited x 1/R Ch.17 Value of Money= 1/P As Value of Money Decreases demand increases As Value of Money Decreases price levels increase Nominal Variables- Measured in Monetary Units Real Variables- Measured in Physical Units Monetary Nuetrality- Changes in Money only affect nominal variables NOT real variables In long-run monetary neutrality holds true In short-run it does not hold Velocity of money- the rate at which money travels around the economy from wallet to wallet. V= (PxY)/M P=Price Level Y= Output M=Quantity of Money Increase in Money- price levels rise, velocity must fall Inflation Tax- Not a true tax, but everyone who holds money is affected. Government Devalues currency to compensate for unpaid income tax...
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- Spring '08