What is money? To an economist, anything that serves as a medium of exchange, unit of account, or a store of value.
Why do you think bartering would not be practical in our economy? Because money needs to be a… 1. Medium of exchange: Widely accepted by everyone. A teacher does not want to be paid 300 bananas for a days work. Eliminates the need to BARTER
Money must also act as a… 2. Unit of Account: A means for comparing the value of a good or service. Example: We say money is a “unit of account” because we can use it to compare the price of different items. We don’t have to determine how many shirts are required to buy a car. (PROVIDES A COMMON DENOMINATOR)
Money must also serve as a… 3. Store of Value: Something that keeps its value of it is stored rather than used. Example: If you store your money in the bank to save for a car, it is acting as a “store of value”. Think about it, a bartering economy would be awful if you were trying to store your “money”.
1. Progressive Tax – The percentage paid in taxes increases as income increases (Income tax in the United States). 2. Proportional/Flat Tax – The percentage paid in taxes is the same at all wage levels. 3. Regressive Tax – The percentage paid in taxes decreases as income increases.
1. Diana earns $100k per year and pays $30k in taxes, while Maya earns $50k per year and pays $10k in taxes. What kind of tax is this? 2. Tyriq earns $100k a year and pays $25k in taxes, while Giselle earns $80k and pays $20k in taxes. What kind of tax is this?
Expansionary Policy means we want to increase the money supply. Expansionary Fiscal Policies: 1. Lower Taxes 2. Increase Spending Expansionary Monetary Policies: 1. Lower interest rates (discount rate) 2. Buy Bonds 3. Lower the reserve ratio
Contractionary Policy means we want to decrease the money supply. How we use contractionary policy is exactly the opposite of expansionary policy (from last slide). IMPORTANT LAST VOCAB: Open-Market Operations – When the Federal Reserve banks buys and sells bonds.