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Chapter 25 Inflation and Money

Chapter Objectives

By the end of this chapter, students should be able to:

  1. Describe the strongest evidence for the reduced-form model that links money supply growth to inflation.
  2. Explain what the aggregate supply-aggregate demand (AS-AD) model, a structural model, says about money supply growth and the price level.
  3. Explain why central bankers allow inflation to occur year after year.
  4. Define lags and explain their importance.