Chapter 17 - Money Growth and Inflation

Monetary neutrality

________- the proposition that changes in the money supply do not affect real variables.

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

________ makes investors less able to sort successful from unsuccessful firms.

Inflation tax

________- the revenue the government raises by creating money.

Deflation

________ is rarely as steady and predictable.

P × Y

Because velocity is stable, when the central bank changes the quantity of money (M), it causes proportionate changes in the nominal value of output (________)

Quantity equation

the equation M × V= P × Y, which relates the quantity of money, the velocity of money, and the dollar value of the economys output of goods and services.

Shoeleather costs

________- the resources wasted when inflation encourages people to reduce their money holdings.

Inflation

________ does not in itself reduce peoples real purchasing power.