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Lecture Introduction to economics: Social issues and economic thinking: Chapter 7 - Wendy A. Stock

Chapter 7 - Inflation and the measurement of prices. After completing this unit, you should be able to: Explain the difference between the face value of money and the purchasing power of money, describe inflation and calculate inflation across time periods, describe the winners and losers from inflation, | Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan Chapter 7 Inflation and the Measurement of Prices Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: public domain image from wikipedia: http:en.wikipedia.org/wiki/File: Mugabecloseup20008.jpg 1 Explain the difference between the face value of money and the purchasing power of money Describe inflation and calculate inflation across time periods Describe the winners and losers from inflation Distinguish the sources of inflation Illustrate the difference between real and nominal values Copyright © 2013 John Wiley & Sons, Inc. 2 After studying this chapter, you should be able to: 2 Inflation is the rise in the general level of prices in an economy. Zimbabwe’s hyperinflation Inflation rate 11.2 million percent per year prices doubled every 25 hours! Copyright © 2013 John Wiley & Sons, Inc. 3 Inflation 3 The Face Value of Money is determined by governments and printed on currency. The Purchasing Power of Money reflects the amount of goods and services that a given unit of money could be used to acquire. Copyright © 2013 John Wiley & Sons, Inc. 4 THE VALUE AND USES OF MONEY 4 Three Roles of Money: Medium of Exchange – Money can be used as a means of payment for goods and services or repayment of debt. Unit of Account – Money provides a common measure of the worth of goods or services. Store of Value – Money can be saved and used to purchase goods and services at a future time. Copyright © 2013 John Wiley & Sons, Inc. 5 Definition of Money 5 Commodity Money has value for its own sake, in addition to its value as money. e.g. gold, silver, shells, stones, decorated belts, cigarettes, and alcohol Fiat Money has value because of government law or regulation. e.g. Federal Reserve Notes, most paper money Copyright © 2013 John Wiley & Sons, Inc. 6 Evolution of money 6 Price Index - A measure of the average prices of a given set of goods or services across time. . | Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan Chapter 7 Inflation and the Measurement of Prices Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: public domain image from wikipedia: http:en.wikipedia.org/wiki/File: Mugabecloseup20008.jpg 1 Explain the difference between the face value of money and the purchasing power of money Describe inflation and calculate inflation across time periods Describe the winners and losers from inflation Distinguish the sources of inflation Illustrate the difference between real and nominal values Copyright © 2013 John Wiley & Sons, Inc. 2 After studying this chapter, you should be able to: 2 Inflation is the rise in the general level of prices in an economy. Zimbabwe’s hyperinflation Inflation rate 11.2 million percent per year prices doubled every 25 hours! Copyright © 2013 John Wiley & Sons, Inc. 3 Inflation 3 The Face Value of Money is determined by governments and printed on .