Tuesday, February 7

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Tuesday, February 7

• 1. Turn in Homework
• 2. Essential Terms
• Inflation
• Hyperinflation
• Consumer Price Index (CPI)
• Fixed income
• Market basket

• Wage-price spiral
• Deflation
• Core inflation rate
• Quantity theory
• Cost push theory
• Demand pull theory

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Why is Money Important?

• 1. As a medium of exchange
• Money is valuable because it is accepted in
  buying goods and services. Money makes trading
  easier than it would be in the case of barter.

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Why is Money Important?

• 2. It is a store of value
• Money is a way of storing wealth. For example,
  if you work today, you can get paid in money and
  wait to spend it in the future.

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Why is Money Important?

• It is a measure of value
• Money can be used to state how much things are
  worth. The value of goods and services can be
  expressed in money prices allowing for easy
  comparisons.

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A Money Model

• M the supply of money in the economy
• V the number of times a year that the average
  dollar is spent on FINAL goods and services
• P the overall price level in the economy
  (average price at which all output is sold)
• Q the quantity of all goods and services
  produced
• MVPQ

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A Money Model

• MV PQ
• MV is the total amount spent by buyers
• PQ is the total amount received by the sellers
• They must be equal.

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Why is the money supply in the economy important?

• Too much money relative to the supply of goods
  and services can cause inflation.
• Too little money can cause decreases in
  production, leading to unemployment.

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ON FRIDAY

• We will conduct a Socratic Seminar on the causes
  of poverty in the United States
• You must be prepared or you will be given an
  alternate writing assignment