Stockman discusses money growth and inflation. The overall level of prices in an economy adjusts to bring money supply and money demand into balance (where the supply is fixed by the Fed and the demand for money reflects how much wealth people want to hold in liquid form); in other words: the quantity of money available determines the price level. Stockman then goes on to discuss classical dichotomy.
I thought this chapter was pretty confusing and contained a lot of vocabulary words (inflation,: the increase in the overall level of prices, deflation: the decrease in the overall level of prices, hyperinflation: an extraordinarily high rate of inflation, quantity theory of money: a theory asserting that the quantity of money available determines the price level and the growth rate and the quantity of money available determines the inflation rate, nominal variables-variables measured in monetary value, real variables: variables measured in physical units, classical dichotomy: the theoretical separation of nominal and real variables, monetary neutrality-the proposition that changes in the money supply do not affect real variables). I'm still trying to figure out how they all relate and I would also like to go over the graphs, because they're a lot different that all the other graphs we've previously discussed.
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