Macroeconomics - Chapter 16: Inflation, Disinflation, and Deflation

Real Quantity of Money

Money/Prices

Seignorage

The revenue generated by a government printing money

inflation tax

The reduction in the real value of money by the public caused by inflation

Real Seignorage Formula

rate of growth of MS x real quantity of money OR ΔM/M x M/P

Hyperinflation

super high inflation rate (over 100%) from increasing MS and printing money

Natural Rate of Unemployment

amount of unemployment at the potential output

Output Gap

Gap between real GDP and potential output

Okun's law

There is a predictable negative relationship between the GDP and the unemployment rate - each increase in GDP 1% → decrease in unemployment rate by 0.5%.

Short-run Phillips Curve

The negative short-run relationship between the unemployment rate and the inflation rate

• downward sloping line

Shifters of the SRPC

• expected inflation rate

• supply shocks

Non-Accelerating Inflation Rate of unemployment (NAIRU)

= Natural Rate of Unemployment

Disinflation

Is the process of bringing down inflation, increasing prices but at a slower rate

• very costly through the unemployment rate

Natural Rate of Unemployment

Is the part of the unemployment rate unaffected by the swings of the business cycle

NAIRU

Another name for natural rate

Zero Bound Interest Rate

The interest rate cannot go below zero, without causing problems.

Liquidity Trap

The inability to use monetary policy because nominal interest rates are too low and cannot fall below the zero bound