Tutorial_CHAP04 - CHAPTER 4 Money and Inflation A...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter  Four 1 CHAPTER 4 Money and Inflation ® A PowerPoint Tutorial To Accompany MACROECONOMICS, 6th. ed. N. Gregory Mankiw By Mannig J. Simidian
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Chapter  Four 2 Stock of assets Stock of assets Used for transactions Used for transactions A type of wealth A type of wealth Money Inflation is an increase in the average level of prices, and a price is the rate at which money is exchanged for a good or service.
Background image of page 2
Chapter  Four 3 It serves as a store of value, unit of account, and a medium of exchange. The ease with which money is converted into other things such as goods and services--is sometimes called money’s liquidity.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Chapter  Four 4 Money is the yardstick with which we measure economic transactions. Without it, we would be forced to barter. However, barter requires the double coincidence of wants— the unlikely situation of two people, each having a good that the other wants at the right time and place to make an exchange.
Background image of page 4
Chapter  Four 5 Fiat money is money by declaration. It has no intrinsic value. Commodity money is money that has intrinsic value. When people use gold as money, the economy is said to be on a gold standard.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Chapter  Four 6 The government may get involved in the monetary system to help people reduce transaction costs. Using gold as a currency is costly because the purity and weight has to be verified. Also, coins are more widely recognized than gold bullion. The government then accepts gold from the public in exchange for gold-certificates— pieces of paper that can be redeemed for actual gold. If people trust that the government will give them the gold upon request, then the currency will be just as valuable as the gold itself—plus, it is easier to carry around the paper than the gold. The end result is that because no one redeems the gold anymore and everyone accepts the paper, they will have value and serve as money.
Background image of page 6
Chapter  Four 7 The money supply is the quantity of money available in an economy. The control over the money supply is called monetary policy. In the United States, monetary policy is conducted in a partially independent institution called the central bank. The central bank in the U.S. is called the Federal Reserve , or the Fed.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Chapter  Four 8 To expand the money supply: The Federal Reserve buys U.S. Treasury Bonds and pays for them with new money. To reduce the money supply: The Federal Reserve sells U.S. Treasury Bonds and receives the existing dollars and then destroys them. The bearer of the United States Treasury bond is hereby promised the repayment of the principle value plus the interest which it incurs through the terms stated thereof. The United States will justly repay its bearers in its entirety and will not default under any circumstances. Signature of the President ___________________ U S . T reasury B ond
Background image of page 8
Chapter  Four 9 The Federal Reserve controls the money supply in 3 ways: Conducting Open Market Operations (buying and selling U.S. Treasury bonds). Changing the Reserve requirements
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 30

Tutorial_CHAP04 - CHAPTER 4 Money and Inflation A...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online