Money Growth and Inflation
Terms
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- Price Level
- the price of a basket of goods and services
- Menu Costs
- the costs of changing prices
- Velocity of Money
- the rate at which money changes hands
- Deflation
- periods during which most prices fall
- Consumer Price Index
- a measure of the overall cost of the goods and services bought by a typical consumer
- Monetary Neutrality
- the proposition that changes in the money supply do not affect real variables
- Real Variables
- variables measured in physical units
- Inflation Tax
- the revenue the government raises by creating money
- Shoeleather Costs
- the resources wasted when inflation encourages people to reduce their money holdings
- Classical Dichotomy
- the theoretical separation of nominal and real variables
- Fisher Effect
- the one-for-one adjustment of the nominal interest rate to the inflation rate
- Inflation
- increase in the overall level of prices
- Nominal Variables
- variables measured in monetary units
- Hyperinflation
- an extraordinarily high rate of inflation
- Quantity Theory of Money
- a theory asserting that the quantity of money avaliable determines the price level and that the growth rate in the quantity of money available determines the inflation rate
- Monetary Injection
- when the Fed injects money into the economy by buying some government bonds from the public in open-market operations
- Quantity Equation
- the equation M*V=P*Y, which relates the quantity of money, the velocity of money, and the dollar value of the economy's output of goods and services