ch 12 inflation

quantity theory of money

p increases when govt prints too much money

inflation

drives up prices, drives down value of money

quantity of money demanded

negatively related to value of money, positively related to p

nominal variables

monetary units

real variables

physical units

relative price

price of 1 good relative to another

classical dichotomy

theoretical separation of nominal and real variables, affect nominal not real

neutrality of money

preposition that changes in MS do not affect real variables

relative price unchanged

real wage unchanged

velocity of money

rate at which money changes hands

real GDP constant

inflation equals money growth rate

real GDP growing

inflation less than money growth rate

hyperinflation

exceed 50%/month

excessive growth in M

inflation tax

revenue from printing money = inflation

increase in printing —> increase in prices —> decrease in purchasing power

inflation formula

money growth rate - real GDP growth

real interest rate

nominal interest rate - inflation

costs of inflation

shoe leather cost: resources wasted

menu costs

misallocation of resources

confusion/inconvenience

tax treatment of capital growth

tax distortions (nominal income, real no, tax on nominal)

increase in inflation

lender —> borrower

decrease in inflation

borrower —> lender