What Do We Mean by Inflation

question 5

Multiple Choice

What do we mean by inflation?

• A) The expansion of universe starting with the instant after the Big Bang
• B) A sudden expansion of the universe driven by the energy released when the strong and electroweak forces froze out from the GUT force
• C) The rapid expansion of the universe, driven by white dwarf supernova, that we still observe today
• D) The sudden release of photons when particles and antiparticles annihilate each other
• E) The photons released when electrons and protons first combined, forming the Cosmic Microwave Background Radiation

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Definitions:

Classical Dichotomy

The theoretical separation of nominal and real variables in the economy, suggesting that changes in the money supply only affect nominal variables.

Nominal Variables

Economic variables measured in current prices, without adjusting for inflation, reflecting their value in terms of current money.

Real Variables

Economic variables that have been adjusted for inflation, allowing for the comparison of quantities over time.

Monetary Neutrality

The idea that changes in the money supply only affect nominal variables and have no long-term impact on real variables like output or employment.