Principles of Economics - Chapter 21: The Price Level and Inflation

Capital gains taxes

Taxes on the gains realized by selling an asset for more than its purchase price

Chained CPI

A measure of the consumer’s price index in which the typical consumer’s “basket “ of goods and services considered is updated monthly.

Consumer price index (CPI)

A measure of the price level based on the consumption patters of the typical consumer.

Deflation

Condition occurring when overall prices fall

Equation of exchange

An equation that specifies the long-run relationship between the money supply, the price level, real GDP, and the velocity of money.

Menu costs

The costs of changing prices

Money illusion

The interpretation of nominal changes in wages or prices as real changes

Nominal Wage

A worker’s wage expressed in current dollars

Output

The product that a firm creates

Real wage

The nominal wage adjusted for changes in the price level.

Shoe-leather costs

The resources that are wasted when people change their behavior to avoid holding money.

Velocity of money

The number of times a unit of money exchanges hands in a given year.