ECON 272

In Class Exercise Seven – Macro Policy and Inflation and Deflation

1.  What is monetary policy?  Do all economists think that monetary policy is a good idea?  Explain. 

2.  What is the velocity of money?  How does it relate to the demand for money?  Explain.

3.  How is inflation usually defined? But what does this definition leave out?

4.  How is deflation usually defined? But what does this definition leave out?

5.  What has been the major cause of inflation throughout history?  Explain generally in words what causes the inflation to happen.

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6.  Now explain the process of inflation showing injection or Cantillon effects (the real world). 

7.  Given your explanation above, explain why relative price changes cause changes in resource allocation.    Give an example in your answer!

8.  What questions do you still have about this material?