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Principles of Economics- Mankiw (5th) 632

Principles of Economics- Mankiw (5th) 632 - 652 PA R T T E...

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652 PART TEN MONEY AND PRICES IN THE LONG RUN quantity theory of money, p. 632 nominal variables, p. 633 real variables, p. 633 classical dichotomy, p. 633 monetary neutrality, p. 634 velocity of money, p. 635 quantity equation, p. 635 inflation tax, p. 638 Fisher effect, p. 640 shoeleather costs, p. 642 menu costs, p. 644 Key Concepts 1. Explain how an increase in the price level affects the real value of money. 2. According to the quantity theory of money, what is the effect of an increase in the quantity of money? 3. Explain the difference between nominal and real variables, and give two examples of each. According to the principle of monetary neutrality, which variables are affected by changes in the quantity of money? 4. In what sense is inflation like a tax? How does thinking about inflation as a tax help explain hyperinflation? 5. According to the Fisher effect, how does an increase in the inflation rate affect the real interest rate and the nominal interest rate?
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