18 Questions
What determines the demand for money according to the text?
Level of transactions and institutions in the economy
What leads to a proportional change in the price level?
Changes in the quantity of money
What do classical economists, including Fisher, believe about wages and prices?
Completely flexible
How does an increase in money supply affect the price level?
Increases it proportionally
What remains fairly constant in the short run according to the Quantity Theory of Money discussed in the text?
Velocity
Which factor predominantly affects changes in the price level according to Quantity Theory of Money?
Changes in money supply
The equation of exchange states that the quantity of money multiplied by the what must be equal to nominal income?
Number of transactions
If people begin to use credit cards more frequently for transactions instead of cash, what is the likely impact on velocity according to the text?
Velocity will increase
What would happen to nominal income if money supply (M) increases but velocity (V) decreases?
Nominal income will remain unchanged
How are institutions affecting transactions related to the determinants of velocity according to the text?
They influence how frequently money is used in transactions
Which of the following best represents an example of the quantity theory of money, as explained in the text?
$$$M imes V = PXY$$$
In the short run, how does the text suggest that changes in institutional and technological features of the economy impact velocity?
Velocity remains stable despite changes
What does Fisher's view that velocity is fairly constant in the short run transform the equation of exchange into?
Quantity theory of money
If the quantity of money M doubles according to the quantity theory of money, what happens to nominal income (P x Y)?
Doubles
What does the quantity theory of money state is determined solely by movements in the quantity of money M?
Nominal income (spending)
How is the demand for money interpreted in terms of Fisher's quantity theory?
$M = k imes PY / V$
How are transactions generated in relation to the quantity of money demanded (Md)?
$Md = k imes PY$
According to Fisher's view on the demand for money, what factor does not affect the demand for money?
Interest rates
Learn about the equation of exchange in Quantity Theory of Money, which states that the quantity of money times the number of times it is spent equals nominal income. Understand the relationship between money supply, nominal income, and velocity of money.
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