Definitions
What is interest rates
The proportion of a loan that is charged as interest to the borrower
What is the equation of the quantity theory of money?
MxV=PxY
What does an increase in money supply lead to?
An increase in price level
What are the three ways the Fed can manage the money supply?
Open market operations, discount rate, reserve requirements
What is Money Supply?
The amount of money in circulation, including cash, loans, and other financial assets.
What is usually held constant in the quantity theory of money?
Velocity and real GDP
How does the money market graph directly impact the AD-AS curve
Interest rates
What caused hyperinflation in Germany 1923?
What is Inflation?
A long term increase in the price level
What is Money Supply directly proportional to in the quantity theory of money?
Price Level
What does increased government spending do immediately after?
A rightward shift in the AD graph
What was Venezuelas solution to the global oil prices dropping?
Printing more money
What is the Fed?
The Federal Reserve bank which implements monetary policy.
How do recent trend describe the velocity of money?
Erratic, no longer stable
What causes a shift in the Aggregate Demand graph when the money supply is increased?
An decrease in interest rates leading to an increase in investment spending
How expensive was a loaf of bread in 1923 Germany?
Could be billions of marks
What is the equation for Aggregate Demand?
C+I+G+(X-M)
What does PxY actually represent?
Nominal GDP
What causes a shift in the SRAS line when the money supply is increased?
An increase in nominal wages
They show how increasing money supply just leads to inflation