Chapter_13_Notes.docx

Chapter_13_Notes.docx - Chapter 13 Notes Chapter 13 Money,...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 13 Notes Chapter 13 Money, Banks, and the Federal Reserve System The macroeconomy is greatly affected by money. It is important to all aspects of this course as well as our daily lives. This chapter defines what money is, the functions money has, how money is measured, how it is created (simplistically), the structure and some of the actions of the Federal Reserve (the main controller of the money supply), and the quantity theory of money to explain inflation. 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 - Asset – anything of value owned by a person or a firm This is a very broad definition and can mean a lot of things. Most people think currency when they think of money. Currency is paper money and coins. Checks are acceptable as payment for purchases so checking account deposits may be considered money as well. Money is not income. Money is not wealth. Income – flow of earnings per unit of time - Ex. $70,000 a year Wealth – total collection of prices of property that serve to store value - Money is an aspect of wealth Barter and the Invention of Money Economies where goods and services are traded directly for other goods and services are called barter economies. - Produce your good and trade 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 13 Notes Can lead to inefficiency if the good you produce is not wanted by the person who produces the good you would like to trade for. You may need to make several trades to get things together. Commodity money – a good used as money that also has value independent of its use as money - Even if no use for it as a commodity will still accept it Money allows people to pursue their competitive advantage and specialize in this. Money makes exchanges easier and allows for specialization and higher productivity. - Reduces transaction costs of barter economy - Work at what you’re good at, earn money, and spend it Functions of Money Now that there is a definition for money (even though it is very broad), what are the functions of money in the economy? We will discuss three. 1. Medium of exchange – it is used to pay for goods and services - More efficient than barter economy For a commodity to function effectively as money, it must meet several criteria: a) Easily standardized b) Widely accepted c) Divisible d) Easy to carry – “valuable relative to its weight” e) Not deteriorate quickly 2. Unit of account – measures value in an economy -measure the value of goods and services in terms of money 2
Background image of page 2
Chapter 13 Notes -have all prices quoted in terms of money (instead of various other goods if a barter economy) 3. Store of value – storage area of purchasing power over time - Don’t have to spend everything at once. Money is not the only asset that can be a store of value. It may not always be the best store of
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/27/2010 for the course ECON 2010 taught by Professor Roussel during the Spring '08 term at LSU.

Page1 / 17

Chapter_13_Notes.docx - Chapter 13 Notes Chapter 13 Money,...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online