ECO100Y5 Chapter Notes - Chapter 16: Seigniorage, Hyperinflation, Debt Deflation

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Chapter 16: (inflation, disinflation, and deflation: hyperinflation: defined as high rate of inflation, always associated with rapid increases in the money supply. In the long run, increase in the money supply does not change the level of real gdp, but it dies result in an equal percentage rise in the overall price level. Supply leads to a long-run increase in the aggregate price level that leaves the real money. It ignores the distinction between sr and lr: flat money: money without intrinsic value. Sources of government revenue includes to print money. Government print money when debt is high and they are unwilling to decrease spending or increase tax. This brings up inflation and impose an inflation tax on people who currently hold money. People substitute to real goods and interest bearing assets during hyperinflation: the revenue created by printing money is called real seignorage. Seignorage= (changes in ms)/(change in price level)= growth rate of ms/real ms.

Related Questions

a) Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 1.0. The aggregate demand curve is Y = 2(M/P) and M = 1,500.

i) If the economy is initially in long-run equilibrium, what are the values of P and Y?

ii) What is the velocity of money in this economy?

b) Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 1.0. The aggregate demand curve is Y = 3(M/P) and M = 1,000.

i) Suppose a supply shock moves the short-run aggregate supply curve to P=1.5. What are the new short run P and Y? What will be the new long run P and Y?

ii) Suppose that immediately after the supply shock the Federal Reserve Bank wanted to hold output at its long-run level. What level of M would be required? If this level of M were maintained, what would be long-run equilibrium P and Y?

iii) If M increases to 2,000, what are the new short-run values of P and Y?

iv) Once the economy adjusts to long-run equilibrium at M = 2,000, what are P and Y?

c) Use the aggregate demand

bronzehamster418

1. In the long run, when prices are perfectly flexible:

a. aggregate supply is vertical and a market economy is self-correcting.

b. a market economy cannot self-correct.

c. government will be required to set prices to maintain equilibrium.

d. changes in aggregate demand cause equilibrium real GDP to change.

2. An increase in household wealth when the SRAS curve is upward sloping:

a. leads to an increase in the price level but has no impact on real GDP

b. has no impact on the price level but leads to an increase in real GDP

c. leads to an increase in both the price level and real GDP

d. has no impact on the price level or real GDP

3. In the long run, continued increases in aggregate demand not matched by similar increases in aggregate supply will cause:

a. an increase in the full-employment level of real GDP

b. a recessionary gap

c. a decrease in the price level

d. an increase in the price level

4. The vertical long-run aggregate supply curve implies that:

a. changes in aggregate demand will not affect the price level

b. the short-run aggregate supply curve is also vertical

c. natural or full-employment real GDP does not depend on the price level, in the long run

d. natural or full-employment real GDP is the same as the equilibrium real GDP in the short run

5. A rightward shift of the long-run aggregate supply curve illustrates:

a. economic growth

b. a recessionary gap

c. an inflationary gap

d. a decrease in natural real GDP

6. When the economy is in a recessionary gap

a. there is a surplus of labor

b. there is a shortage of labor

c. it is producing a real GDP level that is greater than natural real GDP

d. the unemployment rate is less than the natural unemployment rate

7. If the actual unemployment rate is less than the natural unemployment rate:

a. a recessionary gap exists and wages are likely to rise

b. an inflationary gap exists and wages are likely to rise

c. a recessionary gap exists and wages are likely to fall

d. an inflationary gap exists and wages are likely to fall

8. An economy in long-run equilibrium is producing:

a. a level of real GDP that is greater than its natural real GDP

b. where both the price level and real output are maximized

c. a level of real GDP equal to its natural real GDP

d. in the vertical range of aggregate demand.

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Question 2

For any given expected inflation rate, short-run aggregate supply curves show the relationship between

the money supply and growth rate of output.

inflation and growth rate of output.

production factors and wages.

inflation and wages.

1 points

Question 3

Why is the SRAS curve steeper above its intersection with the Solow growth curve?

		Wages are stickier in the upward direction.
		Wages are less sticky in the upward direction.
		Lower inflation will lead to faster growth.
		Employees become less motivated to work during times of unexpected inflation.

1 points

Question 4

What factors triggered the Great Depression?

		decreased consumer spending and tight monetary policy
		decreased investment and increased inflation
		decreased employment and increased money supply
		decreased inflation and increased income taxes

1 points

Question 5

How might changes in the money supply be non-neutral in the short run?

		As the amount of money circulating in the economy changes before prices respond, consumers' purchases change accordingly, which leads producers to change production levels.
		When money supply changes in the short run, it will affect nominal, but not real, variables in the short run.
		As money growth increases at a faster rate, it will cause real GDP to grow at an equally faster rate.
		If producers expect inflation to increase, they will increase supply in order to sell before the arrival of inflation.

1 points

Question 6

For a given nominal interest rate, an increase in deflation will cause the real rate of interest to

remain relatively constant.

increase.

decrease.

become unpredictable.

Question 8

Which of the three price indexes measures the average price level of the largest total number of goods?

		the consumer price index
		the GDP deflator
		the producer price index
		Each price index accomplishes the same task.

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ECO100Y5 Chapter Notes - Chapter 16: Seigniorage, Hyperinflation, Debt Deflation

ECO100Y5 Full Course Notes

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		the money supply and growth rate of output.
		inflation and growth rate of output.
		production factors and wages.
		inflation and wages.