Chapter 1
Why Study Money, Banking, and
Financial Markets?
ⅠWhy Study Money
1 Money and Business Cycles
2 Money and Inflation
3 Money and Interest Rates
4 Monetary and Fiscal Policy
What is money?
Money (money supply)—anything that is
generally accepted in payment for goods
or services or in the repayment of debts; a
stock concept
1Money and Business Cycles
Evidence suggests that money
plays an important role in generating
business cycles
Monetary Theory ties changes in the money
supply to changes in aggregate economic
activity and the price level
Recessions (unemployment) and booms
(inflation) affect all of us
2 Money and Inflation
The aggregate price level is the
average price of goods and services in an
economy
Data shows a connection between the money
supply and the price level
A continual rise in the price level (inflation)
affects all economic players
Case study:
A story about inflation
3 Money and Interest Rates
Interest rates are the price of money
