ECN 301 Chapter Notes - Chapter 7: Nominal Interest Rate, Real Interest Rate, Exchange Rate

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In the 1970s, canada experienced episodes of mild inflation (1 to 3%) creeping (4 to 7%) and galloping (7 to 15%) Hyperinflations are extremely destructive, inflicting severe damage on the ability of money to grease the wheels of the market. Classical dichotomy real variables (such as real gdp, real investment spending, or the real exchange rate) can be analyzed and calculated without thinking of nominal variables (such as price level). Economists also speak of it as the property whereby money is neutral. Money liquid wealth that can be spent. Toda(cid:455) the e(cid:272)o(cid:374)o(cid:373)(cid:455)"s sto(cid:272)k of (cid:373)o(cid:374)e(cid:455) is (cid:373)ade f(cid:396)o(cid:373) (cid:272)oi(cid:374)s a(cid:374)d (cid:272)u(cid:396)(cid:396)e(cid:374)(cid:272)(cid:455), (cid:272)he(cid:395)ui(cid:374)g account balances, and other assets. Money eliminates a double coincidence of wants, reduces transaction costs and promotes market efficiency. The same assets that serve as the most common form of readily spendable purchasing power also serve as units of account.

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