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VCC Economics Assignment 07

VCC Economics Assignment 07 - Our textbook says that what...

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Don Uhrig Principles of Economics-Macro, ECO-2013, Su 1700-1945 Professor Dr. Jim Chase Assignment #7 List the major functions of money: I found Chapter 11 to be very fascinating. The author of our textbook really is engaging in his writing style. I admit I have been a ‘blind’ user of currency. I have never really stopped to think about the trust that is imbedded in the paper/linen currency that we carry as well as other financial instruments. As for the functions of money. Money serves as a medium of exchange, as a unit of account and as a store of wealth. As exchange, money is easy to carry and transfer rather than chunks of precious metals, shells or even rare gems. As a unit of account, money is easier on the brain than having to memorize thousands of relational values. In addition, money as a store of wealth allows us to be liquid in our financial assets and transactions. We are free to hold the money for as long as we want and use it whenever we want. List and define the money measures:
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Unformatted text preview: Our textbook says that what people believe is money and what people will accept as money are determining factors n deciding whether a financial asset is money. Because that can be ambiguous, economists have developed different measures of money. M1 consists of currency in the hands of the public. Such as cash & coins, checking account balances and traveler’s checks. If it looks like money, acts like money, and functions as money, it’s a good bet it’s money. M2 is made up of M1 PLUS savings deposits, small-denomination time deposits (CDs), and money market mutual fund shares. M2’s components include more financial assets than M1. All components are highly liquid and play an important role in providing reserves and lending capacity for banks. But what makes the M2 measure important is that economic research has shown that M2 is the measure of money often most closely correlated with the price level of economic activity. Page 1 of 1...
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