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Econ 17
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Terms in this set (17)
inflation
an increase in the overall level of prices
deflation
a decrease in the overall level of prices
hyperinflation
extraordinarily high inflation
quantity theory of money
the theory that the quantity of money determines prices and the growth rate of money determines inflation
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 property that changes in the money supply affect nominal variables but not real variables
velocity of money
rate at which money circulates
quantity equation
M x V = P x Y
inflation tax
the practice of a government raising revenue by printing money
nominal interest rate
interest rate uncorrected for inflation
real interest rate
interest rate corrected for inflation
fisher effect
the one-to-one adjustment of the nominal interest rate to inflation
shoeleather costs
resources wasted when inflation causes people to economize on money holdings
menu costs
the costs associated with changing prices
capital gains
profits made from selling an asset for greater than the purchase price
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