ch4a - In this chapter, you will learn The classical theory...

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slide 0 CHAPTER 4 Money and Inflation In this chapter, you will learn… The classical theory of inflation causes effects social costs “Classical” – assumes prices are flexible & markets clear Applies to the long run
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slide 1 Inflation and its trend, 1960-2009 - 3% 0% 3% 6% 9% 12% 15% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 long-run trend % change in CPI from 12 months earlier
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slide 2 CHAPTER 4 Money and Inflation The connection between money and prices Inflation rate = the percentage increase in the average level of prices. Price = amount of money required to buy a good. Because prices are defined in terms of money, we need to consider the nature of money, the supply of money, and how it is controlled.
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slide 3 Money on the island of Yap An interesting money story Think about these questions: What is money? What functions does money serve? Who creates money? Why does the value of money change? http:// www.missingaircrew.c om/images/ content_bg.jpg CHAPTER 4 Money and Inflation
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slide 4 Money on the island of Yap Country: Micronesia Land: about 40 sq miles. Population: about 6000. CHAPTER 4 Money and Inflation
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slide 5 Stone money Stone money Sizes of money: range from pocket size to 12 feet in diameter. Production of stone: The stones are not local. Need to be quarried and transported from the island of
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This note was uploaded on 05/08/2011 for the course ECON 362 taught by Professor Birz during the Fall '08 term at Binghamton University.

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ch4a - In this chapter, you will learn The classical theory...

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