01:220:103 Chapter Notes - Chapter 17: Money Market Account, Money Supply, Aggregate Demand
Document Summary
1936: general theory of employment, interest, and money. First to emphasize aggregate demand and links between the money market and the goods market. Refer to economists who advocate active government intervention in the macroeconomy (role in fighting inflation and unemployment) When economy is experiencing inflation, best to increase taxes or reduce gov spending (and vice versa) Movement against keynesian economics after inflation problems of 70s and recessions of 74-75 and 80-82. Velocity of money - the number of times dollar bill changes hands, on average, during a year; the ratio of nominal gdp to the stock of money. Gdp = py (real output times the price level) Quantity theory of money - the theory based on the identity mv = py and the assumption that the velocity of money (v) is a constant (or virtually constant) Changes in m cause equal percentage changes to gdp. Determined by institutional considerations (how often people are paid)
