Money causes Inflation Citizenship: Introduction to Economics

About the Unit In the Introduction to Economics Unit we will be exploring the following questions: Why do we have private property? Why do we have money (currency)? What is inflation? How does money and goods flow between producers and consumers? Why are some goods/services more expensive than others? How the economy can be measured?

Money causes inflation... Inflation is a rise in the price of goods and services which occurs as a result of more money being introduced into the economy Money circulates at a constant speed (people are constantly buying and selling things with money) If more money is put into the system people have more money with which to buy goods and services This results in too much money chasing too few goods, which leads to rises in price. Therefore, money causes inflation.

Money circulates at a constant speed If more money is put into the system... People have more money to buy goods and services Which leads to price rises Therefore money causes inflation

Historical Examples Christopher Columbus arrives in Americas causing silver and gold to flow into Spain Jean Bodin argues that the abundance of silver and gold in Spain is the result of sharp rises in the prices of goods David Hume states that the money supply has a direct relationship to price level Irving Fishcer develops a mathematical formula to explain the quantity theory of money John Maynard Keynes says that the speed of money circulation is unstable Milton Friedman argues that a change in the amount of money in the economy can have a predictable effect on people’s income.

Summary Inflation is a rise in the price of goods and services which occurs as a result of more money being introduced into the economy