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Money causes Inflation
Citizenship: Introduction to Economics
About the Unit
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In the Introduction to Economics Unit we will be exploring the
following questions:
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Why do we have private property?
Why do we have money (currency)?
What is inflation?
How does money and goods flow between producers and
consumers?
Why are some goods/services more expensive than others?
How the economy can be measured?
Money causes
inflation...
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Inflation is a rise in the price of goods and services which occurs
as a result of more money being introduced into the economy
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Money circulates at a constant speed (people are constantly
buying and selling things with money)
If more money is put into the system people have more money
with which to buy goods and services
This results in too much money chasing too few goods, which
leads to rises in price.
Therefore, money causes inflation.
Money circulates at a
constant speed
If more money is
put into the
system...
People have more money to
buy goods and services
Which leads to price rises
Therefore money causes inflation
Historical Examples
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1492 - Christopher Columbus arrives in Americas causing silver and
gold to flow into Spain
1568 - Jean Bodin argues that the abundance of silver and gold in
Spain is the result of sharp rises in the prices of goods.
1752 - David Hume states that the money supply has a direct
relationship to price level.
1911 - Irving Fishcer develops a mathematical formula to explain the
quantity theory of money.
1936 - John Maynard Keynes says that the speed of money
circulation is unstable.
1956 - Milton Friedman argues that a change in the amount of money
in the economy can have a predictable effect on people’s income.
Summary
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Inflation is a rise in the price of goods and services which occurs
as a result of more money being introduced into the economy