ECON1102 Lecture Notes - Lecture 11: Gdp Deflator, Price Level, Money Supply
Document Summary
Real economy: economy of the physical world where physical goods and services are produced and consumed. Money (nominal) economy: circulation of money and other financial instruments throughout the economy above and beyond that physical economy: does not exist without the real economy. In the long run the real and nominal sides of the economy are completely separate. E. g. when all prices in the economy doubles, relative prices are unchanged, and only relative prices affect the real economy. Referred to as the neutrality of money changes in money supply have no real affects on the economy. Money neutrality explicitly holds in the long run (the time when all economic factors can be altered and so adjustments are perfect) Cost of inflation: arbitrary redistributions of wealth. Hyperinflation: generally refers to inflation rates that are fast and high enough as to cause major real disruptions in an economy.
