Money Growth and Inflation

These flashcards cover key concepts and terms related to money growth and inflation, drawn from the lecture notes on macroeconomics.

Inflation

An increase in the overall level of prices in an economy.

Deflation

A decrease in the overall level of prices.

Hyperinflation

An extraordinarily high rate of inflation.

Classical Theory of Inflation

Prices rise when the government prints too much money.

Value of Money (1/P)

The quantity of goods and services that can be bought with a dollar.

Money Supply (MS)

The total amount of monetary assets available in an economy at a specific time.

Money Demand (MD)

How much wealth people want to hold in liquid form.

Nominal Interest Rate

The interest rate before adjustments for inflation.

Real Interest Rate

The interest rate adjusted for inflation.

Velocity of Money

The rate at which money circulates in the economy.

Quantity Theory of Money

The theory asserting that the quantity of money determines the price level.

Classical Dichotomy

The theoretical separation of nominal variables and real variables.

Fisher Effect

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

Inflation Tax

Revenue that the government raises by printing money, leading to a decrease in the value of money.

Shoeleather Costs

The costs associated with reducing money holdings to avoid inflation tax.

Menu Costs

Costs incurred by firms when they change prices.

Arbitrary Redistributions of Wealth

Wealth redistribution caused by unexpected inflation.

Inflation Fallacy

The misconception that inflation reduces people's real purchasing power.

Inflation-Induced Tax Distortions

Inflation causing nominal income to grow faster than real income, resulting in higher tax burdens.

Confusion and Inconvenience

Difficulties in planning and measuring transactions due to changing price levels.