Theory vs. Policy•Theory tells a story.–Neoclassical vs Keynesian•Policy takes an action.–Neoclassical theory promotes laissez-faire policy.–Keynesian theory promotes activist policy.•Two types of Policy (decisions made by…)–Monetary: money supply & interest rates (Federal Reserve)–Fiscal: gov’t spending & taxation (Congress)
Money, Money, Money•What is money? –M-PESA: –https://–•Money is a highly liquid financial asset.–To be liquidmeans to be easily changeable into another asset or good.–Social customs and standard practices are central to the liquidity of money.
How do we use money? •Economics in Plain English: •Functions of Money:–Medium of Exchange:•Money is generally accepted in exchange for other goods–Unit of Account:•Money is used as a reference in valuing other goods.