Chapter 7

Question 1

Equation of Exchange

Answer 1

Shows the relationship between prices and the money supply

Question 2

Only way consumers can spend more on all goods is if?

Answer 2

There are more dollars available to spend– the money supply must increase.

Question 3

MV=PQ, where…

Answer 3

M is money supply
P is the price level
Q is the amount of output produced by the economy

Question 4

PQ is amount spent on?

Answer 4

The output at current price level- total amount of spending in the economy

Question 5

V answers question of?

Answer 5

How can 2.5T purchase the 15T worth of output that was produced during the year?

Question 6

“Turning Over”

Answer 6

Any dollars in our pockets or in our bank account came from somewhere, and they will go to somewhere, and they will go on form there.

Question 7

V- Velocity

Answer 7

Average number of ties that $1 turns over

Question 8

MV=PQ just means…

Answer 8

That the output in the economy is brought by the money supply, which is spent and re-spent at a rate of V. This is the INTERPRETATION OF THE EQUATION OF EXCHANGE.

Question 9

Over a short time period, resources are limited, so..

Answer 9

Output is limited

Question 10

Who can up with Simple Quantity Theory?

Answer 10

Formulated by John Stuart Mill, developed by Irving Fisher and Ludwig von Mises

Question 11

The speed at which money moves though the economy is…

Answer 11

Limited

Question 12

Simple quantity theory assumes that in the short run,

Answer 12

Output and velocity are constant.

Question 13

Money supply doubles…

Answer 13

Price level doubles

Question 14

Result of the simple quantity theory is that the….

Answer 14

Price level and the money supply are proportionally related

Question 15

Monetarism beings with…

Answer 15

Equation of exchange

Question 16

Velocity is stable function of a few variables, so velocity is…

Answer 16

Predictable and stable

Question 17

Monterism assumes that output is…

Answer 17

Not fixed

Question 18

Monterism assumes that the labor market is in…

Answer 18

Equilibrium in the long run, with the amount of labor supplied equal to the amount of labor demanded.

Question 19

If labor market is in equilibrium?

Answer 19

Our output is at its potential.

Question 20

Increase in money supply makes prices?

Answer 20

Rise

Question 21

Increase in demand for labor and for other resources pushes resource prices up causing?

Answer 21

The cost of proceeding output rises

Question 22

In the long run with higher prices?

Answer 22

Real wage, real price, and all other real prices are the same as before. In the long run, helo drop causes inflation.

Question 23

If inflation is spread over all goods….

Answer 23

It’s affect is basically zero.

Question 24

Cost of producing is ____ due to inventories.

Answer 24

NOT LOWER

Question 25

Your wealth is higher due to

Answer 25

Inventory

Question 26

If you take out a loan before inflation...

Answer 26

You gain from inflation, lender loses.

Question 27

Unanticipated inflation, borrowers gain and lenders lose....

Answer 27

In fact, everyone who has a contract to pay with inflated dollars gains, while those who receive the inflated dollars lose. Also, those who are saving dollars lose.

Question 28

Nominal interest rate

Answer 28

Rate that is advertised, which shows up on your financial statements

Question 29

Real Interest Rate

Answer 29

Banks formulate their nominal interest rate, based on what they expect inflation to be.

Question 30

For loans with minimal risk, the real interest rate, the nominal rate minus the expected inflation rate is about?

Answer 30

2-3%

Question 31

Higher the risk of non-payment...?

Answer 31

The higher the real interest rate

Question 32

Secured Loans

Answer 32

Loans with a real asset, like a house.

Question 33

Unsecured

Answer 33

Nothing to back up the loan

Question 34

Unsecured loans are

Answer 34

higher because it costs the company much more to administer the credit card, whose payment vary and charges continue to pile up and be paid off.

Question 35

With uneven inflation, we do not know the?

Answer 35

Real worth of goods

Question 36

In order for firms and consumers to produce and consume efficiently in a healthy spontaneous order...

Answer 36

They need prices to tell them about scarcity and about others' preferences.

Question 37

Formation of Bubbles

Answer 37

When money is created by the Fed, the dollars go somewhere. This raises the prices in some parts of the economy, but not all parts.

Question 38

Austrian economists view the overall spontaneous order of the market- based on tastes, knowledge, and scarcity, all coaxed by prices, as....

Answer 38

Stable

Question 39

What do all prices have in common?

Answer 39

The money supply.

Question 40

Austrians say that errors by what make the root of all destabilization in the economy.

Answer 40

Central Banks

Question 41

Money lowers>=?

Answer 41

Transaction costs

Question 42

Monetizing the debit

Answer 42

If a central bank such as the Fed, attempts to assist the state in its borrowing by purchasing debt in return for dollars

Question 43

Inflation assists the sate in?

Answer 43

Financing its borrowing

Question 44

Inflationary Tax

Answer 44

When the state creates inflation in order to reduce the value of its debit

Question 45

During the gold standard, what was the average inflation rate?

Answer 45

Near zero, varying between -3.84% and 2.46%.

Question 46

During the Fed's reign, dollar prices have averaged?

Answer 46

4%, varying between -1.7% and 9.7%

Question 47

Normal inflation is how much?

Answer 47

3%

Question 48

Saves are lenders, who...

Answer 48

Lose, due to inflationary tax