Chapter 27

Chapter 27 - Chapter 27 Well be concentrating more about...

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Chapter 27 We’ll be concentrating more about money, where it comes from, what it is, and what it serves to the economy. What is money? Money is a medium exchange – facilitates transactions If there were no money, goods would have to be exchanged in a system of barter - this is when you exchange goods and services for other goods and services o Barter is very inefficient due to the double coincidence of wants. – You need to find someone who actually wants what you have, and is willing to trade what he has. o Money makes this inefficiencies less occurring. o Money is the most fundamental invention because it facilitates trade, and once you’ve facilitated trade, this allows for specialization as it becomes much easier for trade. Money is also used as a store of value – without high inflation, money retains its value well – inflation is the general increase in price level, it will eat up the actual value of money. o When hyperinflation occurs – money loses its money so quickly (e.g. Zimbabwe) that people cease to use money, and revert to barter. – And you get back all the inefficiencies associated with barter. – HYPERINFLATION is creatred by central banks producing to much money. Money is used as a unit of account. o Used to keep our financial accounts The origins of money Money has evolved over time, taking various forms: o Metallic money – years ago, the market value of the metal was equal to the face value of the coin. (today the market value of the metal is not the same as
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Chapter 27 - Chapter 27 Well be concentrating more about...

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