Chapter4 - CHAPTER4 MoneyandInflation APowerPoint Tutorial...

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Chapter  Four 1 CHAPTER 4   Money and Inflation ® A PowerPoint Tutorial To Accompany   MACROECONOMICS, 7th. Edition N. Gregory Mankiw Tutorial written by: Mannig J. Simidian B.A. in Economics with Distinction, Duke University  M.P.A., Harvard University Kennedy School of Government M.B.A., Massachusetts Institute of Technology (MIT) Sloan School of Management
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Chapter  Four 2 Stock of assets Stock of assets Used for transactions Used for transactions A type of wealth A type of wealth Money As a medium of exchange, money is used to buy goods and services. The ease at which an asset can be converted into a medium of exchange and used to buy other things is sometimes called an asset’s liquidity. Money is the economy’s most liquid asset.
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Chapter  Four 3 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. Here is a great illustration of the power of inflation: In 1970, the New York Times cost 15 cents, the median price of a single-family home was $23,400, and the average wage in manufacturing was $3.36 per hour. In 2008, the Times cost $1.50, the price of a home was $183,300, and the average wage was $19.85 per hour.
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Chapter  Four 4 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.
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Chapter  Four 5 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.
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Chapter  Four 6 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.
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Chapter  Four 7 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.
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Chapter  Four 8 The money supply is the quantity of money available in an economy. The control over the money supply is called
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This note was uploaded on 12/04/2011 for the course ECON 305 taught by Professor Neri during the Spring '11 term at American.

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Chapter4 - CHAPTER4 MoneyandInflation APowerPoint Tutorial...

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