We offer this text as an undergraduate-level exposition about lessons of monetary economics gleaned from overlapping generations models. Assembling recent advances in monetary theory for the instruction of undergraduates is not a quixotic goal; these models are well within the reach of undergraduates at the intermediate and advanced levels. These elegantly simple models strengthen our fundamental understanding of the most basic questions in monetary economics. How does money promote exchange? What should serve as money? What causes inflation? What are the costs of inflation?

This approach to teaching monetary economics follows the profession's general recognition of the need to start building the microeconomic foundations. More directly, our observation is that economists explain aggregate economic phenomena as the implications of the choices of rational people who seek to improve their welfare within their limited means. The use of microeconomic foundations makes macroeconomics easier to understand because the performance of such abstract economic processes as gross domestic product and inflation is linked to something understood by all-rational individual behavior. It also brings powerful tools such as indifference curves and budget lines to bear on questions of interest. Finally, the joining of micro- and macroeconomics introduces a level of consistency across undergraduate studies. Certainly, students will be puzzled if taught that people are rational and prices clear markets when studied by microeconomists but not when studied by macroeconomists.