Inflation
The Increase in the overall level of prices
Deflation
The decrease in the overall level of prices
Hyperinflation
an extraordinary rate of inflation
Price Level
measure of the value of money
Consumer Price Index
A measure of the overall cost of the goods and services bought by a typical consumer
Monetary Injection
shifts the supply curve to the right from MS1 to MS2
Quantity Theory of Money
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
Nominal Variables
variables measured in monetary units
Real Variables
variables measured in physical units
Classical Dichotomy
the theoretical separation of nominal and real variables
Monetary Neutrality
the proposition that changes in the money supply do not affect real variables
Velocity of Money
the rate at which money changes hands
Quantity Equation
the equation M X V = P X Y, which relates the quantity of money, the velocity of money, and the dollar value of the economy's output of goods and services
Inflation tax
the revenue the government raises by creating money
Fisher Effect
the one-for-one adjustment of the nominal interest rate to the inflation rate
Shoeleather Costs
the resources wasted when inflation encourages people to reduce their money holdings
Menu Costs
the cost of changing prices