deflation
sustained period of negative inflation
hyperinflation
inflation of more than 50% per month (or roughly 13,000% per year)
velocity of money
ratio of nominal GDP to the money supply (V=PY/M); shows how quickly money moves through the economy
quantity equation of money
relationship among the money supply, velocity, and nominal GDP: MV=PY
bimetallism
monetary system in which money is backed by both gold and silver
printing money
financing government budget deficits by selling bonds to the central bank
seigniorage revenue
revenue the government receives from printing money
shoe leather costs
inconveniences that come from holding less money when inflation is high
after-tax real interest rate (r^~)
the interest rate adjusted for both taxes and inflation: r^~=(1-u)r-upi
liquidity trap
situation in which output is below potential at a nominal interest rate of zero (a real interest rate of -pi), eliminating the central bank's usual ability to raise output and inflation; also zero-bound problem
zero bound
limit on the nominal interest rate; a central bank cannot reduce i below zero, which limits its ability to stimulate the economy