Macro Final
MV=PY
quantity equation
velocity of money
rate at which money changes hands
costs of inflation
shoeleather costs, menu costs, disproportionate taxation, ineffecient markets, arbitrary redistribution
menu costs
the costs incurred by firms changing prices (i.e., reprinting the menu)
the fisher effect
the one-for-one adjustment of nominal interest rate to real interest rate
inflation tax
the revenue the government raises by creating money
classic dichotomy
theoretical separation of nominal and real variables
monetary neutrality
theory that changes in the money supply do not impact real variables
quantity theory of money
theory that suggests the quantity of money available determines the price level and that the growth rate in the quantity of money available determines inflation rate
shoeleather costs
time and energy spent reducing monetary holding in response to inflation
nominal variables
variables measured in monetary units
real variables
variables measured in physical units