Midterm Topic 12

Question 1

inflation

Answer 1

change of the price level that repeats itself over periods of time [steady change in the price level]

Question 2

what causes inflation?

Answer 2

inflation (pi>0) is caused when nominal money supply grows faster than real GDP.

Question 3

what causes deflation?

Answer 3

deflation (pi<0) is caused when real GDP grows faster than nominal money supply