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Flashcards in Chapter 10 Deck (4)
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1
Q

Fisher Effect

A

Nominal Interest Rate
= Real Interest Rate + Inflation

A increase in inflation causes and equal increase in the nominal interest rate.

2
Q

Money Demand

A

Reflects how much money people want to hold.

3
Q

Real Money Demand Function

A

(M/P)^d = L(i,Y)

If i goes up, money demand goes down.
(Opportunity cost of holding money)

If Y goes up, money demand also goes up.
(More Spending)

4
Q

Money Supply

A

Exogenous policy variable chosen by a central bank. -> vertical line!