Economics Exam 3 Study Guide

Economics Exam 3 Study Guide - Economics Exam 3 Study Guide...

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Economics Exam 3 Study Guide Chapter 13 – Money, Banks, and the Federal Reserve System What Is Money and Why Do We Need It? -Money – assets that people are generally willing to accept in exchange for goods and services or for payment of debts -Commodity money – a good used as money that also has value independent of its use as money -Why do we need money? By making exchange easier, money allows for specialization and higher productivity. -What are the four functions of money? 1. Medium of exchange -it is used to pay for goods and services -accept it in exchange for goods or services -Example: local supermarket accepts your $5 bill in exchange or bread and milk, the $5 bill is serving as a medium of exchange. -An economy is more efficient when a single good is recognized as a medium of exchange -it reduces the need to quote many different prices in trade. -each good has a single price quoted in terms of the medium of exchange 2. Unit of account -measures value in an economy -way of measuring value in the economy in terms on money -measure the value of goods and services in terms of money -have all prices quoted in terms of money (instead of various other goods if a barter economy) -Example: because the U.S. economy uses dollars as money, each good has a price in terms of dollars.
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This note was uploaded on 03/11/2010 for the course ECON 2010 taught by Professor Roussel during the Spring '08 term at LSU.

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Economics Exam 3 Study Guide - Economics Exam 3 Study Guide...

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