Ch. 14 Flashcards
(11 cards)
income effect
The change in the interest rate due to a change in Real GDP.
continued inflation
A continued increase in the price level.
liquidity effect
The change in the interest rate due to a change in the supply of loanable funds.
velocity
The average number of times a dollar is spent to buy final goods and services in a year.
simple quantity theory of money
The theory assuming that velocity (V) and Real GDP (Q) are constant and predicting that changes in the money supply (M) lead to strictly proportional changes in the price level (P).
equation of exchange
An identity stating that the money supply (M) times velocity (V) must be equal to the price level (P) times Real GDP (Q): MV ≡ PQ.
real interest rate
The nominal interest rate minus the expected inflation rate. When the expected inflation rate is zero, the real interest rate equals the nominal interest rate.
expectations effect
The change in the interest rate due to a change in the expected inflation rate.
nominal interest rate
The interest rate actually charged (or paid) in the market; the market interest rate: Nominal interest rate = Real interest rate + Expected inflation rate.
One-shot inflation
A one-time increase in the price level; an increase in the price level that does not continue.
price-level effect
The change in the interest rate due to a change in the price level.
