Chapter 30: Money Growth And Inflation

Question 1

Nominal variables

Answer 1

Variables measured in monetary units

Question 2

Real variables

Answer 2

Variables measures in physical units

Question 3

Classical dichotomy

Answer 3

The theoretical separation of nominal and real variables

Question 4

Monetary neutrality

Answer 4

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

Question 5

Velocity of money

Answer 5

The rate at which money changes hands

Question 6

Quantity equation

Answer 6

The equation MxV=PxY, which relates the quantity of money, the velocity of money, and the dollar value of th economy’s output of goods and services

Question 7

Fisher effect

Answer 7

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

Question 8

Shoeleather cost

Answer 8

The resources wasted when inflation encourages people to reduce their money holdings

Question 9

Menu costs

Answer 9

The costs of changing prices

Question 10

Quantity theory of money

Answer 10

A theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate