Until now, we have explained price instability as occurring primarily from demand-pull or cost-push factors. Today we will study the theory that inflation is caused primarily by fluctuations in the money supply. You should have read the text chapter identified below in the homework section and watched the related videos. We will start class today with you working cooperatively with a partner to find a solution to the "Problem of the Day" and then there will be a lecture on our next topic. This page contains all the information you need for today's class: homework, the problem of the day, helpful resources (videos, podcasts, etc.) and an explanation of the activities we will do in class. Use the table of contents on the right to help you navigate.
Read Mankiw (Chapters 29 and 30) and watch the following video.
Problem of the Day: You will work cooperatively with your partner to construct a response to the following prompt.
Define commodity money and fiat money. Which one do we use?
Explain the three functions of money.
$100 drops from the sky and you pick it up and deposit it in your bank account. Assume that this $100 had not previously been part of the money supply. If the reserve ratio is 10 percent, by how much will the total amount of required reserves in the banking system increase? Explain your answer and show your work.
Lecture
Khan Academy Videos
Related Readings