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Chapter 10 - Chapter 10 Money Prices and the Fed A Money...

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Chapter 10: Money, Prices, and the Fed A. Money: Introductory Comments 1. Market economy a. Market an exchange of goods and services for money b. Money is a prerequisite for the existence of a market economy 2. Money vs. Income vs. Wealth (NOT ALL THE SAME!) a. Money- coins, deposits b. Income- what is earned for providing goods and services (not necessarily money) c. Wealth: value of all a person’s assets B. Money: The Basics 1. Definitions a. Textbook definition: anything that is generally accepted in exchange for goods and services (this definition doesn’t matter—circular reasoning!) b. Money is a social process of obligations and fulfillment i) Most money used today has no physical form (direct deposit, electronic) ii) A check isn’t money it’s a contract between a bank and a third party c. Money is a set of relationships that have to do with obligations being fulfilled 2. What does money do? Five Functions: a. Means of Payment 1
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Chapter 10: Money, Prices, and the Fed i) Medium of exchange- typical market activity; used in payment for goods and services at the time of transaction (bilateral payment) ii) Means of unilateral payment- money flowing in one direction (taxes, fines) b. Unit of Account: written account of transactions i) Example of difference between a and b: In Europe, the Euro existed for three years as a means of account (starting in 1999), but the countries still used their national currency until 2002, when they began to use the Euro. c. Standard of Value: way of measuring value (wealth); net worth in terms of dollars; also in figurative sense (“penny for your thoughts,” MasterCard ads) d.
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