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

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.

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.

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.

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 MV=PQ

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.

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.

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