a theory asserting that the quantity of money available determines the price level and that growth rate in the quantity of money available determines the inflation rate
nominal variables
variables measured in monetary units
real variables
variables measured in physical units (bushels of wheat)
classical dichotomy
theoritical separation of real and nominal units
monetary neutrality
proposition that changes in the money supply do not affect real variables
velocity of money
the rate at which money changes hands m*v=p*y
shoe leather cost
the resources wasted when inflation encouarages people to reduce their money holdings