James P. Spellicy Lowell High School San Francisco, California Jim Spellicy teaches AP Economics at Lowell High School in San Francisco, California. He currently is a member of the AP Economics test development committee.

Objectives Students formulate explanations for why money, income, and wealth are different but related concepts. Students review the functions of money and the concept of liquidity. Students use computer technology to research and identify the differences between income and wealth. Students work through data on money, income, and wealth. Students evaluate a series of statements as they relate to money, income, and wealth. Students discuss how data on money, income, and wealth can give very different views of individuals' financial well-being. Students discuss how imprecise use of terminology can confuse public policymaking. Time Required 2 class periods Materials Computers with Internet access Handout 1  Wealth and Income Handout 2  Numeric Examples of Money, Income, and Wealth

Overview
Ask the average high school student what he or she expects after college and many will reply, "I expect to earn a lot of money," or "I plan to have tons of money." An economist would quickly point out that the students mean to say something very different. In the first case, the speaker plans to "earn a large income," while in the second, he or she plans "to have much wealth."

The use of the term money as a synonym for income and wealth leads to faulty economic reasoning and confusion. In this lesson, students learn to appreciate how specialized terms lead to greater clarity and more valid analytical evaluations of economic theory.

Teaching Activity
Arrange for students to spend one day in the computer lab. While working in pairs, instruct students to access the Encarta Web site and search and read the entry on wealth. Ask students to complete Handout 1, Wealth and Income. Ask students to read aloud their responses to question 9. Stress the importance of wealth as a stock concept and income as a flow concept. Ask students to speculate what other concepts they know are stock concepts (capital stock) or flow concepts (investment).

Continue the discussion by asking students to recall the functions of money: money serves as a medium of exchange, a unit of accounting, and a store of wealth. Point out that as long as an asset serves as a medium of exchange, it automatically serves also as a form of money. Have students identify certain forms of wealth that can be used as money. They will mention such assets as paper currency, bonds, stocks, and checks. Here have students recall the concept of liquidity. Assets are really differentiated in potential payment for debt by their liquidity. In order of most liquid to least liquid, you have: coin, currency, demand deposits, bonds, stocks, real estate, etc.

Through the money discussion, students will recognize the differences among the three concepts. Money refers to the set of assets commonly used to buy goods and services. It is the portion of one's wealth that is directly spendable or exchangeable for goods and services. Income is most commonly received in the form of money.

In the next class period, ask students to work in pairs to complete Handout 2, Numeric Examples of Money, Income, and Wealth. Have students work on the assignment for one-third of the class period. Select five students from different groups to go to the board to present their findings. Instruct the first student to fill in the table for Jake and the second student to fill in the table for Hannah. Ask the third student to discuss the answers to questions 1 through 5, the fourth to discuss possible answers to 6, and the fifth to discuss possible answers to 7. Finally, discuss as a class what students have learned from the lesson.