EC223 Lecture Notes - Precious Metal, Money Supply
Document Summary
Wealth not only includes money, but also stocks, bonds, land, furniture, cars, and houses. Income is a flow of earnings per unit of time. Money serves three primary functions: a medium of exchange, a unit of account, a store of value. Medium of exchange money is used to pay for goods and services. Unit of account measures value in the economy. Store of value it is a repository of purchasing power over time. How good a store of value money is depends on the price level, because its value is fixed in terms of the price level. A doubling of all prices means that the value of money has doubled. During a period of high inflation, when the price level is increasing rapidly, money loses value rapidly, and people will be reluctant to hold their wealth in this form. This is especially true during periods of extreme inflation, known as hyperinflation, in which the inflation rate > 50% per month.
