Chapter 12 Of Mankiew Text - Money Growth And Inflation

Front 1

Def of velocity

Back 1

rate at which money changes hands in transactions involving final goods and services

Front 2

Equation for Velocity

Back 2

V=(P x Y) / M
P x Y = nominal gdp
P = price index
Y = real gdp
M = money stock

Front 3

the quantity equation:

Back 3

M x V = P x Y

shows relationship of quantity of money to nominal gdp

Front 4

the 2 assumptions for the quantity theory of money

Back 4

1. quantity of money available determines price level
2. growth rate in the quantity of money available determines inflation rate

Front 5

assumptions about V and Y

Back 5

V is always constant
Y is never affect by changes in money b/c it is "real"

Front 6

def of shoeleather costs

Back 6

resources (your time and inconvience) wasted when inflation encourages people to reduce their money holdings

Front 7

def. of menu costs

Back 7

the costs of changing prices

Front 8

Inflation Fallacy =

Back 8

people think that falling purchasing power is the primary cost of inflation in the long run

Front 9

falling purchasing power is not a cost of inflation in the long run because.....?

Back 9

wages and salaries (nominal wages) increase along with the increase in inflation