Monday 261019
Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 10 Money and Prices in the Long Run Chapter 29 of 36 Money Growth and Inflation Section 14 of 29 … The principle of monetary neutrality states: · an increase in the rate of money growth · raises the rate of inflation · but does not affect any real variable, e.g. amount of goods produced Interest rates link the present economy and the future economy through effects on saving and investment. The nominal interest rate is the interest rate announced at your bank. It tells you how much the number of dollars in your savings account will increase per year because of interest earned by it. … The real interest rate corrects the nominal interest rate for inflation. It tells you how much the purchasing power of your savings account will increase per year. The real interest rate is the nominal interest rate minus the inflation rate. Real interest rate = nominal interest rate - inflation rate. If your bank · pays a ...