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Flashcards in Chapter 7 Deck (20):
1

Equation of Exchange

Shows the Relationship between prices and the money supply

MV=PQ

2

MV=PQ

M=

Money Supply

3

MV=PQ

V=

Velocity

(the number of times $ turns over)

4

MV=PQ

P=

Price Level

5

MV=PQ

Q=

Amount of output produced by an economy

6

Who discovered MV=PQ?

John Stuart Mill

7

Nominal Interest Rate

Formulated Rates that banks make based on predicted real interest rates

8

Secured Loans

loans backed by assets that are less risky

9

unsecured loans

not backed by anything, higher rates

10

Monetizing Debt

Fed purchasing debt in return for dollars

11

Inflationary Tax

when the fed creates inflation on order to reduce the value of it's debt

12

3 assumptions of the simple quantity theory

the equation of exchange applies
Velocity is constant
Output is constant

13

What is the prediction of the simple quantity theory?

The Price Level and Money Supply are proportionally related

14

Helicopter Drop Story

In the short run, prices and output increase.
In the long run, wages increase causing output to to be restored to potential.

15

What assumptions does the simple quantity theory rest on?

Velocity is a stable function of a few variables

Output may change in the short run, but in the long run, it returns to the economy's potential.

16

What did Piketty and Saez's research show?

Based on tax records, the average taxpayer's income in the US has been stagnant since the 1980's, while top incomes have grown.

17

What did Burkhauser, Larrimore, and simon show?

We see a 37% growth in incomes when we factor in household data, account for taxes, transfers, and fringe benefits, and adjust for household size.

18

What two observations did Thomas Sewell make about inequality?

As people age, they gain experience and education therefore they grow richer. Also people who are poor can increase their incomes and the wealthy sometimes lose incomes at random times.

19

US poverty rate

16%

20

How much per person does the US spend on anti-poverty programs?

20,000