28 Money, Interest, and Inflation

Photo shows a machine with a circular formation of slots that hold bundles of dollars.

What causes inflation?

Chapter Checklist

When you have completed your study of this chapter, you will be able to

  1. 1 Explain what determines the demand for money and how the ­demand for money and the supply of money determine the nominal interest rate.

  2. 2 Explain how in the long run, the quantity of money determines the price level and money growth brings inflation.

  3. 3 Identify the costs of inflation and the benefits of a stable value of money.

MyEconLab Big Picture Video

Where We are and Where We’re Heading

MyEconLab Concept Video

Before we explore the effects of money on the interest rate and the inflation ...

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