# Money Growth and Inflation

### 51 terms by eiro

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### 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 meaured 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
V = (P x Y) / M

V = velocity
P = Price level
Y = real GDP
M = qty of money

### quantity equation

M x V = P x Y
the qty 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

### Real interest rate

= Nominal interest rate - Inflation rate

### Nominal interest rate

= Real interest rate + Inflation rate

### shoeleather costs

the resources wasted when inflation encourages people to reduce their money holdings

the costs of changing prices

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