Chapter 13 - Chapter 13 Money Banking and Monetary Policy What is Money Money is defined in terms of its functions as a Medium of Exchange Standard

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Chapter 13 Money, Banking, and Monetary Policy
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What is Money? Money is defined in terms of its functions as a . .. Medium of Exchange Standard of Value Store of Value
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What is Money? Money as a Medium of Exchange Money serves as generally accepted means of payment for goods and services This makes transactions in a society possible without resorting to barter In a barter economy: trade only good for goods makes transactions much more difficult (more difficult to find the „right“ transaction partner)
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What is Money? Money as a Medium of Exchange Example: Suppose there is no money and you have to resort to barter if you want to trade something You produce wheat (so you have an amount of wheat that you can trade), but you need tires for your truck Either you find someone you wants to trade tires for wheat (in exactly the same amount as you want), or you find someone who wants to trade tires for beef AND someone who wants to trade beef for wheat Or you find someone who wants to trade tires for lumber AND someone who wants to trade lumber for beef AND someone who wants to trade beef for wheat ....
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What is Money? Money provides a Standard of Value i.e. money provides a way of expressing prices of goods and services In a barter economy: huge list of prices 3 goods 3 prices (A B, A C, B C) 4 goods 6 prices (A B, A C, A D, B C, B D, C D) 5 goods 10 prices See the principle: the number of prices increases faster than the number of goods Now imagine how many goods there are in society. .. and how many prices there would be if it were a barter economy If you use money instead one good: one price
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What is Money? Money provides a way to store value Money provides a way to accumulate/store wealth for use in the future Example: Producers of perishable goods (farmers for example) problem to save income from a single period for the future as vegetables/meat is perishable (costly to be stored and to be sold later) money gives the opportunity to sell now and spend the income at a later point in time Note: inflation makes money an imperfect store of value
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What is Money? Anything that serves the above functions can be considered as money. What serves as money in the US economy?
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What is Money? What serves as money in the US economy? Coins, paper currency, checks Demand Deposits = checking deposits at commercial banks that do not bear interest („as good as cash“)
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What is Money? What about other assets? Savings deposits = interest-bearing deposits traditionally cannot be used to purchase goods, but: can be converted quickly into money („ near money “) Credit cards means to defer payment Debit cards means to access demand deposits (comparable to checks)
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What is Money? Examples of assets that do not function so
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This note was uploaded on 04/29/2008 for the course ECON 101 taught by Professor Fels during the Spring '08 term at Wisconsin Milwaukee.

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Chapter 13 - Chapter 13 Money Banking and Monetary Policy What is Money Money is defined in terms of its functions as a Medium of Exchange Standard

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