Money Growth and Inflation

These flashcards cover key vocabulary and concepts related to money growth and inflation, providing definitions and explanations to help facilitate understanding and retention for the exam.

Inflation

Increase in the overall level of prices.

Deflation

Decrease in the overall level of prices.

Hyperinflation

Extraordinarily high rate of inflation.

Quantity Theory of Money

Theory that explains the long-run determinants of the price level and inflation rate.

Real Variables

Variables measured in physical units, such as relative prices and real wages.

Nominal Variables

Variables measured in monetary units, such as dollar prices.

Monetary Neutrality

Concept that changes in the money supply do not affect real variables.

Velocity of Money (V)

Rate at which money changes hands in the economy.

Fisher Effect

One-for-one adjustment of the nominal interest rate to the inflation rate.

Inflation Tax

Revenue the government raises by creating (printing) money.

Shoeleather Costs

Resources wasted when inflation encourages people to reduce their money holdings.

Menu Costs

Costs of changing prices that firms incur during periods of inflation.

Relative-Price Variability

Inflation distorts relative prices, affecting consumer decisions.

Arbitrary Redistributions of Wealth

Unexpected inflation redistributes wealth among the population, often benefiting debtors at the expense of creditors.

Deflation

Decrease in the general price level of goods and services.

Hyperinflation Effects

Severe inflation often linked to high government deficits and excessive money creation.