MGEB06H3 Lecture Notes - Lecture 4: Classical Dichotomy, Fisher Hypothesis, Real Wages

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This chapter examines the classical theory of money. Once again, we are studying the behavior of price and inflation in the long run. It attempts to explain the causes, effects, and social costs of inflation. Inflation refers to the continuous increase in the general/average price levels or the growth rate of the general price level. Money is anything that people regularly use to buy goods and services from other people. Money is the most liquid asset in our economy, an asset is said to be very liquid if it can easily converted into goods and services. Note: i leave it for you to read the topics on the functions of money , the types of money and how fiat money evolves . Money supply is the quantity of money circulates in an economy. Monetary policy is policy that determines the money supply. Central bank is the institution that is responsible for the design and implementation of a country"s monetary policy.

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