Inflation
A general increase in the prices of goods and services in an economy
What is inflation?
What is the main reason people choose to hold money?
It is a medium of exchange.
a direction relationship between the quantity of money in an economcy and the price level of goods and services
What is quantity theory of money?
A measure of inflation that uses the change price of a weighted average market basket of consumer goods and services purchased by households.
What is CPI?
An effect that describes what happens when people deposit the dollars they receive for those bonds in banks, the money supply expands even more as a result of the money
What is money multiplier effect?
M * V = P * T
What is the Equation of Exchange?
An economic indicator of inflation that the Fed prefers to use
What is Personal Consumption Expenditures (PCE)?
The relationship between money demand and price level
What is an inverse relationship?
a ratio of nominal gross domestic product (GDP) to a measure of the money supply (either M1 or M2)
What is velocity?
How often the PCE is updated
What is a monthly report?
The change to price level if you increase money supply
What is it goes up?
A monetary policy targeting reccomendation that the Fed raise interest rates when inflation is high or when employment exceeds full employment levels, and lower interest rates when levels of inflation and employment are low.
Taylor Rule
The reason the Fed prefers PCE over CPI
What is it measures a broader set of goods and services compared to the CPI?
What happens to demand if there is a higher price level?
What is it goes up?
Something that the Taylor Rule does not account for?
What are economic shocks like a stock market or housing market crash?