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The Money System, Money Growth and Inflation
The Money System, Money Growth and Inflation
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Definition of Money
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The set of assets in an economy that people regularly use to buy goods and services from other people.
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Inflation
Cause of Inflation
Demand-pull inflation
When there is high AD which is in excess of the economy's ability to supply. AD>AS=it pull the general price level up.
Cost-push inflation
Increases in demand of factor production cause the increases in wages and cost production, then the producer push this into the price of products.
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Fisher effect
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When the rate of inflation rises, the nominal interest rate rises by the same amount, the real interest remain the same.