Module 11 Notes - Module 11 Barter literally trading one...

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Module 11: Barter: literally trading one good or service for another Double coincidence of wants: a situation in which two people each want some good or service that the other person can provide What is Money? Money is any good that is widely accepted for the purposes of exchange and in the repayment of debts. Money serves as a medium of exchange . Money acts as an intermediary between the buyer and the seller. Money must serve as a store of value . In a barter system, we saw the example of the shoemaker trading shoes for accounting services. But she risks having her shoes go out of style, especially if she keeps them in a warehouse for future use—their value will decrease with each season. Shoes are not a good store of value. Holding money is a much easier way of storing value. You know that you do not need to spend it immediately because it will still hold its value the next day, or the next year. This function of money does not require that money is a perfect store of value. In an economy with inflation, money loses some buying power each year, but it remains money. Money serves as a unit of account . The ruler by which other values are measured. Aka common denominator. Money must serve as a standard of deferred payment . If it’s usable to make purchases today, it must also be acceptable to make purchases today that will be paid in the future. So money serves all of these functions— it is a medium of exchange, store of value, unit of account, and standard of deferred payment. Fiat money has no intrinsic value. Aka not backed by a commodity (gold, silver, etc.) Liquidity refers to how quickly a financial asset can be used to buy a good or service.
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