[ECONOM 1015] - Final Exam Guide - Everything you need to know! (41 pages long)
Document Summary
P=the price level, price of a basket of goods, measure in money. Asserts that the quantity of money determines the value of money. Two approaches: a supply-demand diagram, an equation. In the real world, determined by the fed, the banking system, and consumers. The shape of the supply curve is a vertical straight line. How much wealth people want to hold in liquid form. All else equal, an increase in p reduces the value of money (1/p), so more money is required to but the same amount of goods and services. Nominal variables are measured in monetary units. Real variables are measured in physical units. Prices are normally measure in terms of money. A relative price is the price of one good relative to another. An important relative price is the real wage: Real wage is the price of labor relative to the price of output w/p. Classical dichotomy: the theoretical separation of nominal and real variables.
