## VocabularyEdit

__Quantity Theory of Money__

**Definition:**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.**What It Means:**

__Nominal Variables__

**Definition:**Variables measured in monetary units.**What It Means:**

__Real Variables__

**Definition:**Variables measured in physical units.**What It Means:**

__Classical Dichotomy__

**Definition:**The theoretical separation of nominal and real variables.**What It Means:**

__Monetary Neutrality__

**Definition:**The proposition that changes in the money supply do not affect real variables.**What It Means:**

Velocity of Money

**Definition:**The rate at which money changes hands.**What It Means:**

__Quantity Equation__

**Definition:**The equation M x V = P x Y relates the quantity of money, the velocity of money, and the dollar value of the economy's output of goods and services.**What It Means:**

__Inflation Tax__

**Definition:**The revenue the government raises by creating money.**What It Means:**

__Fisher Effect__

**Definition:**The one-for-one adjustment of the nominal interest rate to the inflation rate.**What It Means:**

__Shoeleather Costs__

**Definition:**The resources wasted when inflation encourages people to reduce their money holdings.**What It Means:**

__Menu Costs__

**Definition:**The costs of changing prices.**What It Means:**