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Flashcards in Chapter 7 questions Deck (17):

Where does inflation come from?

inflation is a result of the Fed and the banking system increasing the money supply


How can all consumers spend spend more money on all goods and services, without reducing their nominal savings?

The money supply must have increased


What is the common sense interpretation of the equation of exchange?

a years worth of output is bought by the money supply and spent and re-spent V times per year


who founded the monetarism school of economics?

Milton Friedman


Under What conditions would inflation have zero effect on the economy?

if it is wholly anticipated and evenly spread throughout the economy


what is a way to avoid being made worse off by anticipated inflation?

Buy goods whose prices inflate before the inflation starts


True, False. With unanticipated inflation, borrowers gain and lenders lose.

True. the borrow pays off the loan with inflated dollards


What are the two problems with uneven inflation?

Prices no longer reflect value, so mistakes are made

bubbles expand as systematic mistakes are made due to inflation


Which economic school emphasized inflationary bubbles?



Why are interest rates enacted?

to delay consumption


What is the difference between dollars saved and dollars created by the fed?

Dollars saved have the potential to fuel consumption later
since they represent delayed consumption, since they represent delayed consumption.

Dollars made by the Fed dont


what happens when a Fed created inflationary bubble bursts?

unwanted capital goods and constructions are abandoned and the workers that produced them must all find new jobs


Why do the Austrians say that government and the central bank create bubble, though private markets do not?

Because there must be coordinated failures by many individuals and firms. government is the best supplier


what was the difference between inflation using gold as money and inflation using dollars not baked by gold?

inflation using gold was very low. inflation using unbacked dollars was high.


What was the cause of inflation in the late 1960's?

the Fed's monetizing debt to support the Vietnam


Which Fed chairman was able to end the 1970's inflation?

paul volcker


whats norm infl rate