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Chapter 2 - Chapter 2 Money and the Payments System I Money...

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Chapter 2 Money and the Payments System I. Money and how we use it a. Means of Payment Primary use of money Money eliminates a “double coincidence of wants” that is associated with a barter system Money finalizes payments so that buyers and sellers have no further claim on each other b. Unit of account Used to quote prices and record debt Without a unit of account the formula is for n goods is: n(n-1)/2 prices c. Store of value Money must retain its value Money is liquid The more costly it is to convert an asset into money, the less liquid it is II. The payments system-the web of arrangements that allow for the exchange of goods and services among different people a. Commodity and fiat monies Commodity money-things with intrinsic value (silk, salt, gold) Fiat money-value comes from government decree, or fiat Accepted because we believe we can use them in the future and because the law says we must accept them b. Checks
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