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Flashcards in Chapter 7 Deck (48):
1

Equation of Exchange

Shows the relationship between prices and the money supply

2

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

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

3

MV=PQ, where...

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

4

PQ is amount spent on?

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

5

V answers question of?

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

6

"Turning Over"

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.

7

V- Velocity

Average number of ties that $1 turns over

8

MV=PQ just means...

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.

9

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

Output is limited

10

Who can up with Simple Quantity Theory?

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

11

The speed at which money moves though the economy is...

Limited

12

Simple quantity theory assumes that in the short run,

Output and velocity are constant.

13

Money supply doubles...

Price level doubles

14

Result of the simple quantity theory is that the....

Price level and the money supply are proportionally related

15

Monetarism beings with...

Equation of exchange

16

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

Predictable and stable

17

Monterism assumes that output is...

Not fixed

18

Monterism assumes that the labor market is in...

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

19

If labor market is in equilibrium?

Our output is at its potential.

20

Increase in money supply makes prices?

Rise

21

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

The cost of proceeding output rises

22

In the long run with higher prices?

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

23

If inflation is spread over all goods....

It's affect is basically zero.

24

Cost of producing is ____ due to inventories.

NOT LOWER

25

Your wealth is higher due to

Inventory

26

If you take out a loan before inflation...

You gain from inflation, lender loses.

27

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

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.

28

Nominal interest rate

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

29

Real Interest Rate

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

30

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

2-3%

31

Higher the risk of non-payment...?

The higher the real interest rate

32

Secured Loans

Loans with a real asset, like a house.

33

Unsecured

Nothing to back up the loan

34

Unsecured loans are

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.

35

With uneven inflation, we do not know the?

Real worth of goods

36

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

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

37

Formation of Bubbles

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.

38

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

Stable

39

What do all prices have in common?

The money supply.

40

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

Central Banks

41

Money lowers>=?

Transaction costs

42

Monetizing the debit

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

43

Inflation assists the sate in?

Financing its borrowing

44

Inflationary Tax

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

45

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

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

46

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

4%, varying between -1.7% and 9.7%

47

Normal inflation is how much?

3%

48

Saves are lenders, who...

Lose, due to inflationary tax