Chapter4

Chapter4 - slide 1 Chapter 4: Money and Inflation CHAPTER 4...

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Unformatted text preview: slide 1 Chapter 4: Money and Inflation CHAPTER 4 Money and Inflation slide 2 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 U.S. inflation and its trend, 1960-2007 slide 3 0% 3% 6% 9% 12% 15% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 long-run trend % change in CPI from 12 months earlier slide 4 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. slide 5 CHAPTER 4 Money and Inflation Money: Definition Money Money is the stock is the stock of assets that can be of assets that can be readily used to make readily used to make transactions. transactions. slide 6 CHAPTER 4 Money and Inflation Money: Functions medium of exchange we use it to buy stuff store of value transfers purchasing power from the present to the future unit of account the common unit by which everyone measures prices and values slide 7 CHAPTER 4 Money and Inflation Money: Types 1. fiat money has no intrinsic value example: the paper currency we use 2. commodity money has intrinsic value examples: gold coins, cigarettes in P.O.W. camps slide 8 CHAPTER 4 Money and Inflation Discussion Question Which of these are money? a. Currency b. Checks c. Deposits in checking accounts (“demand deposits”) d. Credit cards e. Certificates of deposit (“time deposits”) slide 9 CHAPTER 4 Money and Inflation The money supply and monetary policy definitions The money supply is the quantity of money available in the economy. Monetary policy is the control over the money supply. slide 10 CHAPTER 4 Money and Inflation The central bank Monetary policy is conducted by a country’s central bank . In the U.S., the central bank is called the Federal Reserve (“the Fed”). The Federal Reserve Building Washington, DC slide 11 CHAPTER 4 Money and Inflation Money supply measures, May 2007 $7227 M1 + small time deposits, savings deposits, money market mutual funds, money market deposit accounts M2 $1377 C + demand deposits, travelers’ checks, other checkable deposits M1 $755 Currency C amount ($ billions) assets included symbol slide 12 CHAPTER 4 Money and Inflation The Quantity Theory of Money A simple theory linking the inflation rate to the growth rate of the money supply....
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This document was uploaded on 10/28/2011 for the course ECON 420 at UNC.

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Chapter4 - slide 1 Chapter 4: Money and Inflation CHAPTER 4...

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