Exam 16: The Dynamics of Inflation and Unemployment

During hyperinflations, the real value of money

Today, most economists agree with the monetarists that, in the long run, inflation is caused by

Explain why real and nominal rates of interest will differ when the public expects inflation.

When people expect inflation, they assume that prices are going to increase at a certain rate and factor this into their decision making.

In the short run, decreases in the money supply growth rate will

When making economic policies or taking actions to fight inflation, a central bank will likely find ________ an acceptable part of the solution.

If nominal GDP is $12 trillion and the money supply is $8 trillion, then the velocity of money is

If the velocity of money is 6 and the money supply is $4 trillion, then nominal GDP is

Name two ways or methods a government can employ to eliminate budget deficits.

In order to reduce the high inflation of the late 1970s, Paul Volcker

In the long run, decreases in the growth rate of the money supply will ________ nominal rates of interest and ________ real rates of interest.

If nominal wages increase by 6 percent while real wages increase by 4 percent, the inflation rate must be

Based on the quantity theory of money, hyperinflations are most likely caused by a rapid

Recall the Application about the increase in political independence for the Bank of England and its effect on anticipated inflation to answer the following question(s). In 1997, the Bank of England became more independent from the government. Although the government still retained the authority to set overall policy goals, the Bank of England was free to pursue its policy goals without direct political control. Federal Reserve economist Mark Spiegel compared interest rates on two different types of long-term bonds, those that are automatically adjusted for inflation and those that are not, to see how the British bond market reacted to this policy change. -According to this Application, the difference in interest rates on bonds that are automatically adjusted for inflation and bonds that are not adjusted primarily reflects

Countries with more independent central banks tend to have

The velocity of money is equal to nominal GDP divided by the money supply.

By making more or less money available, the Federal Reserve can alter both the nominal and real interest rates in the long run.

In the short run, increases in the growth rate of the money supply will ________ nominal rates of interest and ________ real rates of interest.

Explain why money demand will be affected when the public expects inflation.

Recall the Application about how to estimate the shifts in the natural rate of unemployment to answer the following question(s). -Recall the Application. Under normal circumstances, the higher the unemployment rate, the ________ job vacancies there will be. Over time, this would tend to ________ the natural rate of unemployment.