Money, Inflation, and Interest Rates
| 1. | What is money?
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An asset that is generally accepted as a means of payment. | |
| 2. | What are the major determinants
of money demand?
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The volume of transactions, the nominal interest rate, and the cost of converting other assets into money. | |
| 3. | What is the velocity of money?
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Velocity is the number of times each dollar turns over per time period in generating $1 of GDP. | |
| 4. | What is the Quantity Theory of
Money?
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A theory according to which variations in the inflation rate are due primarily to variations in the money growth rate. | |
| 5. | What is meant by the classical
dichotomy, or the neutrality of money?
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The monetary sector of the economy does not affect the real sector. | |
| 6. | What is the primary determinant
of ongoing inflation?
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Ongoing money growth. | |
| 7. | What are the costs of inflation?
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Unintended wealth redistribution and increased transaction costs caused by lower real money holdings. | |
| 8. | How are the inflation rate, the real interest rate, and the nominal interest rate related to each other? | r = i - p
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| 9. | What causes hyperinflations? | Excessive use of money growth as a source of government revenue. |