| credibility bonus | The extra reduction in inflation due directly to the public’s belief in
the central bank’s commitment to fighting inflation.
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| credible policy | Policy that people believe their government will follow.
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| government budget constraint | A limit that says the government can finance its deficits only by selling bonds (accumulating debt) or by increasing the monetary base.
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| heterodox approach to stabilization | Coordinated use of monetary, fiscal, and exchange rate policies accompanied by wage and price controls.
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| hyperinflation | Very rapid price increase, sometimes defined as more than 1,000 percent per year.
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| inflation tax | Revenue gained by the government because of inflation’s devaluation of money holdings.
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| inflation-adjusted deficit | Measure of the budget deficit that adjusts for effects of inflation;
specifically, the correction reduces the measured budget deficit by the capital
gain on nominal bonds.
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| inflationary inertia | The tendency of inflation rates to only decrease slowly over time.
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| monetization | Purchase of government debt by the Federal Reserve, thus indirectly funding the deficit by printing money.
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| quantity theory of money | Theory of money demand emphasizing the relation of nominal income to nominal money. Sometimes used to mean a vertical LM curve.
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| sacrifice ratio | During a period of anti-inflation policy, the ratio of cumulative GDP
lost to reduction in the inflation rate.
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| seigniorage | Revenue derived from the government’s ability to print money.
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| velocity of money | The number of times the typical dollar changes hands during
the year.
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