Chapter 17 - Money Growth and Inflation

Monetary neutrality

Monetary neutrality

________- the proposition that changes in the money supply do not affect real variables.

incentives

Almost all taxes distort ________, causing people to alter their behavior.

velocity of money

The ________ is relatively stable over time.

Classical dichotomy

________- the theoretical separation of nominal and real variables.

P × Y

Because velocity is stable, when the central bank changes the quantity of money (M), it causes proportionate changes in the nominal value of output (________)

Shoeleather

________ costs- the resources wasted when inflation encourages people to reduce their money holdings.

Fisher effect

________- the one- for- one adjustment of the nominal interest rate to the inflation rate.

Inflation

________ makes investors less able to sort successful from unsuccessful firms.

economys output of goods

The ________ and services (Y) is primarily determined by factor supplies (labor, physical capital, human capital, and natural resources) and the available production technology.

equation M

Quantity equation- the** ________ × V= P × Y**, which relates the quantity of money, the velocity of money, and the dollar value of the economys output of goods and services.

Deflation

________ is rarely as steady and predictable.

Inflation tax

________- the revenue the government raises by creating money.

Inflation

________ does not in itself reduce peoples real purchasing power.