Class Notes - 10-26-07

Class Notes - 10-26-07 - Macroeconomics Class Notes...

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CHAPTER 16 – THE MONETARY SYSTEM 3 Functions: 1.) Medium of Exchange 2.) Stored Value 3.) Unit of Account Two types of Money Commodity Money: Has non-monetary uses o Collective/collectible coins o Ex. Gold, cigarettes Fiat Money: No other important uses (by Government degree) o Ex: Clad coins, currency o The only value is to serve as value o Legal tender – It’s a crime to not accept USD as a form of payment Gresham’s Law : “Bad money drives out good” – When there are different qualities of money, people will pass off the worst forms of currency and retain the best. MONEY IN THE U.S ECONOMY Money stock – Quantity of money circulating in economy o “Stock” in terms of quantity 2 Different money stock measures o M1 - o M2 MEASUREMENT OF MONEY Narrowest Definition of money: ( M1) o Coins o Currency Paper – only part of money supply when it is held by the non-bank public Money in the checking account is considered “
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Class Notes - 10-26-07 - Macroeconomics Class Notes...

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