ch10outline - Ch. 10- macroeconomics I. The money Supply...

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Ch. 10- macroeconomics I. The money Supply and The Federal Reserve System a. Microeconomics has little to say about money microeconomic theories and models are concerned primarily with real quantities and relative prices. II. An Overview of Money a. Money is not income, and money is not wealth. b. What is Money? i. Money is anything that is generally accepted as a medium of exchange. ii. Money is: 1. A means of payment 2. A store of value 3. A unit of account iii. A Means of Payment, or medium of exchange 1. Money is vital to the working of a market economy 2. Barter - the alternative to a monetary economy; the direct exchange of goods and services for other goods and services. 3. A barter system requires a double coincidence of wants for trade to take place. 4. Medium of exchange (or means of payment) - what sellers generally accept and buyers use to pay for goods and services. a. Eliminates the double coincidence of wants problem. 5. Under a monetary system, money is exchanged for goods and services when people buy things. iv. A store of Value 1. Store of value - an asset that can be used to transport purchasing power from one time period to another. 2. Money has several advantages: a. It comes in convenient denominations and is easily portable over other stores of value
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Money is also a means of payment 3. Liquidity property of money - the property of money that makes it a good medium of exchange as well as a store of value; it is portable and readily accepted and thus easily exchanged for goods. 4. The main disadvantage of money as a store of value is that the value of money falls when the prices of goods and services rise. v. A unit of account - a standard unit that provides a consistent way of quoting prices. 1. All prices are quoted in monetary units c. Commodity and Fiat Monies i. The various kinds of money are divided into two groups: Commodity monies and Fiat money. ii. Commodity monies- items used as money that also have intrinsic value in some other use. 1. Ex. Gold -used to be used to directly buy things and could also be used for jewelry or dental fillings iii. Fiat Money (or token money) - items designated as money that are intrinsically worthless. 1. Money in the U.S. today is mostly fiat money iv. Dollars are no longer backed by any commodity v. The government has taken steps to ensure that its money is accepted. vi. Legal tender - money that a government has required to be accepted in settlement of debts. 1. It does this by Fiat, it passes laws defining certain pieces of paper printed in certain inks on certain plates to be legal tender vii. Another way the government ensures that paper money will be accepted is by promising the public that it will not print money so fast that it loses its value viii. Currency debasement- the decrease in the value of money that occurs when its supply is increased rapidly. 1.
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ch10outline - Ch. 10- macroeconomics I. The money Supply...

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