AP Macroeconomics / Unit 5: Long-Run Consequences of Stabilization Policies
5.3 Money Growth and Inflation
Notes
Quantity theory: $MV=PQ$. If $V$ and $Q$ are stable, increases in $M$ raise $P$.
- In the long run, money is neutral (doesn't change real output).
Practice
If $V$ and $Q$ are constant and $M$ doubles, $P$:
$MV=PQ$.
Money neutrality means in the long run money changes:
No real effects.
Hyperinflation is usually caused by:
Printing money.
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