Chapter 17

Question 1

Hyperinflation

Answer 1

An extraordinarily high rate of inflation

Question 2

Inflation

Answer 2

Increase in overall level of prices

*More about the value of money than about the value of goods

Question 3

Quantity theory of money

Answer 3

The quantity of money available determines the price level and the growth rate in the quantity of money available determines the inflation rate

Question 4

Nominal variables

Answer 4

Measured in monetary units

Question 5

Real variables

Answer 5

Measured in physical units

Question 6

Classical dichotomy

Answer 6

The theoretical separation of nominal and real variables

Question 7

Monetary neutrality

Answer 7

The proposition that changes in the money supply do not affect real variables

Question 8

Velocity of money

Answer 8

The rate at which money changes hands
V = (P x Y) / M
P- price level (GDP Deflator)
Y- quantity of output (real GDP)
M- quantity of money
*relatively stable over time

Question 9

Inflation tax

Answer 9

Revenue the government raises by creating money

Question 10

Shoe leather cost

Answer 10

Resources wasted when inflation encourages people to reduce their money holdings

Question 11

Menu costs

Answer 11

Cost of changing prices

Question 12

Deflation

Answer 12

Decline in prices