Intro to Money & Monetary Policy

AP Macroeconomics

http://en.wikipedia.org/wiki/File:Stacks_of_money.jpg

Where we came from…

In Unit 3, we discussed Keynesian economics, the relationship between price level and output with aggregate demand and aggregate supply; and then we reconciled Keynes’s model with the AD &AS model, as well as LRAS with the PPC. We ended with a talk about fiscal policy. Oh, and let’s not forget that wonderful MULTIPLIER!

Visual 3.13, Unit 3 Macroeconomics, National Council on Economic Education, http://apeconomics.ncee.net

Where are we going?

In this Unit, we’ll learn about the role of money in the economy, and how the money supply is influenced by the central bank and banking system via monetary policy.

First, we need to learn about certain aspects of money.

http://www.writemoneyinc.com/

Money makes the world go ‘round…

Money has been around for a long time.

A wide range of commodities have served as money in different countries at different times.

Prior to money, economies used the barter system.

Problem with the barter system? Something called: double coincidence of wants. That is, you must find someone

who wants what you’re willing to trade, and has what you want in exchange!

http://williamstake.wordpress.com/2012/09/12/why-doesnt-america-just-use-the-barter-system-again/

Money makes the world go ‘round…There are three things

we need to explore:

1) Properties of money

2) Functions of money

3) Definitions of money

http://www.languageguide.org/images/im/tools.png

Properties of money

Portability – you can take it easily from place to place

Uniformity – it is consistent Durability – will (hopefully) last Stability in value – value holds fairly stable

over time (i.e. doesn’t change constantly) Stability in acceptability – people and

economies accept its value fairly consistently over time

Commodities that have served as money…

Cigarettes & chocolate bars in prisoner of war camps

Cattle Seashells

Which properties does each of these possess? Which do they not possess?

http://www.travel-images.com/photo-russia539.html

Functions of mula, I mean money… Medium-of-exchange

function: money is an asset that individuals use to trade for goods and services rather than to consume (i.e. money – you don’t eat it [hopefully], you trade it for things you eat). This eliminates the need for the double coincidence of wants.

http://filipspagnoli.wordpress.com/2008/09/01/human-rights-quote-87-trade-liberalization-and-poverty/

Functions of mula, I mean money, ct’d… Store-of-value

function: permits money to be held for use at some later time. Money holds purchasing power over time. It must, otherwise it would be of value today and worth nothing tomorrow!

http://www.bulletpoints.co.nz/is-it-a-trend-or-is-it-a-megatrend/

Functions of mula, I mean money, ct’d…

Unit-of-account function: this is also known as the “standard of value” function. This means there is an agreed-to measure for stating the prices of goods and services, and it also simplifies price comparisons. Allows us to set prices and make

economic calculations.

http://en.wikipedia.org/wiki/Measurement

This, in other words, means there is a commonly accepted measure.

The logic behind the gold-standard…

And now…

Some resources:

http://www.reffonomics.com/

Morton workbook Activity 34

Works Cited

Economics of Seinfeld. http://yadayadayadaecon.com/clip/46/

Krugman, Paul, and Robin Wells. Krugman’s Economics for AP. New York: Worth Publishers.

Morton, John S. and Rae Jean B. Goodman. Advanced Placement Economics: Teacher Resource Manual. 3rd ed. New York: National Council on Economic Education, 2003. Print.

Reffonomics. www.reffonomics.com.