Notes Week 2-3
Notes Week 2-3 CIS 150
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Date Created: 08/29/15
CHAPTER 17 MONEY GROWTH AND INFLATION Inflation is an economywide phenomenon that concerns first and foremost the value of the economy s medium of exchange Price level can be viewed in 2 ways oz The price level as the price of a basket of goods and services oz The price level as a measure of the value of money If P is the price of goods and services measured in terms of money 1P is the value of money measured in terms of goods and services When the overall price level rises the value of money falls A higher price level a lower value of money increases the quantity of money demanded In the long run the overall level of prices adjusts to the level at which the demand for money equals the supply Money supply H ig 39l Law Value m UTtEiFiEy39 Price legal Money Jami rind Luv l gll ear Gujaratin of High m may The horizontal axis shows the quantity of money The left vertical axis shows the value of money and the right vertical axis shows the price level The supply curve for money is vertical because the Fed fixes the quantity of money supplied The demand curve for money is downward sloping because people want to hold a larger quantity of money when each dollar buys less At the equilibrium point the value of money and the price level have adjusted to bring the quantity of money supplied and the quantity of money demanded into balance
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