1. P level ↑, pp pay more for G&S they buy. =>P level is measure of value of m. ↑P level => lower value of my b.c each dollar buys a smaller Q of G&S.2. ↑Q of money => dollars more plentiful=> ↑P level => each dollar less valuable.3. Nominal variables measured in monetary units .real variables measured in physical units. Ex income of corn farmers is nominal variables: measured in dollars. Quantity of corn produced is real variables: measured in bushels. According to principle of monetary neutrality, ∆Q of money affect NV not RV4. G↑revenue by printing m => levy an inflation tax. B.c prints money, P level ↑, dollars less valuable. inflation is like a tax on pp holding m. G high spending, inadequate tax revenue, printing dollars is the easiest way to pay for its spending. Massive ↑Q of m leads to massive inflation.5. According to the Fisher effect, ↑inflation rate does not affect real interest rate b.c real interest rate is real variable. The nominal interest rate must adjust one-for-one to ∆
This is the end of the preview.
access the rest of the document.
nominal variables, flation, flation rate, arbitra ry redistributions