ECO 1102 Study Guide - Nominal Interest Rate, Neutrality Of Money, Real Interest Rate

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ECO 1102 Full Course Notes
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ECO 1102 Full Course Notes
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Inflation is more about the value of money than the value of goods: value of money is the reciprocal of price level. Money supply is determined by the bank of canada and the banking system. Demand reflects the wealth that people want to hold in liquid form which depends on reliance on credit cards, interest rate and price level. In the long run, the prices adjust to level at which supply = demand. An increase in the money supply decreases the value of money and increases the price level. V = (p x y) / m v=velocity , m= money supply, y= real gdp, p= *austria (1921) , hungary (1921) , germany (1921), poland (1921) experienced hyperinflations: the inflation tax is the revenue that the government raises by creating money to pay for its spending. Nominal interest rate= real interest rate + inflation rate. Inflation itself does not reduce people"s purchasing power ( buyers spend more, sellers get more).

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