ECN 301 Chapter Notes - Chapter 7: Nominal Interest Rate, Money Supply, Monetary Base

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5 Apr 2011
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Inflation: in the 1970s, canada experienced episodes of relatively mild (1 to 3%), creeping (4 to 7%) and galloping (7 to 15%) inflation, inflation was at times large enough to cause significant economic and political trauma. Avoiding a repeat of the inflation of the 1970s remains a major goal of economic policy. The flexible-price model: the classical dichotomy implies that real variables (real gdp, real investment spending, or the real exchange rate) can be analyzed and calculated without considering nominal variables (price level) Money is neutral : this is a special feature of the full-employment flexible-price model. Money: is wealth that is held in a readily-spendable form, is made up of. Other assets that can be turned into cash or demand deposits nearly instantaneously, without risk or cost. The usefulness of money: without money, market transactions would have to be performed through barter, in a barter economy, market exchange would require the coincidence of wants.

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