Ch. 8 Vocab

deflation

occurs when overall prices fall

Consumer Price Index (CPI)

a measure of the price level based on the consumption patterns of a typical consumer

Chained CPI

a measure of the consumer price index in which the typical consumer's "basket" of goods and services considered is updated monthly

shoe-leather costs

the resources that are wasted when people change their behavior to avoid holding money

money illusion

occurs when people interpret nominal changes in wages or prices as real changes

nominal wage

a worker's wage expressed in current dollars

real wage

the nominal wage adjusted for changes in the price level

menu costs

the costs of changing prices

output

the product the firm creates

capital gain taxes

taxes on the gains realized by selling an asset for more than its purchase price

Equation of Exchange

specifies the long-run relationship between the money supply, the price level, real GDP, and the velocity of money

velocity of money

the number of times a unit of money exchanges hands in a given year