Money Growth and Inflation - Chapter 17

These flashcards cover key terms and concepts related to money growth and inflation from Chapter 17, helping students understand the implications of inflation, monetary policy, and economic principles.

Inflation Tax

The erosion of the value of money when a government prints money to cover expenditures instead of taxing or borrowing.

Velocity of Money

The average number of times per year a dollar is spent.

Menu Costs

Costs associated with changing prices, including deciding on new prices, printing new price lists, and advertising new prices.

Real Wage

The purchasing power of wages, adjusted for inflation; it increases if nominal wages rise faster than the price level.

Nominal Wage

The amount of money paid to workers, unadjusted for inflation.

Classical Dichotomy

The separation of nominal and real variables where changes in the money supply do not affect real GDP in the long run.

GDP Deflator

A measure of the level of prices of all new, domestically produced, final goods and services in an economy.

Confusion and Inconvenience Cost

The costs arising from inflation when it affects the unit of account function of money, leading to difficulties in price comparisons.

Relative-Price Variability Cost

The cost resulting from firms changing prices at different times, which can distort relative prices.

Monetary Neutrality

The idea that changes in the nominal money supply only affect nominal variables and do not influence real variables like real GDP in the long run.

Inflation Rate

The percentage increase in the price level over a specific period; calculated based on changes in money supply and real output.

Shoe Leather Costs

The costs incurred by people needing to reduce their money holdings due to inflation, resulting in more frequent bank transactions.

Inflationary Effects on Wealth Distribution

Low-income households suffer more during inflation as they hold more cash and fewer inflation-hedged assets compared to high-income households.