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Unformatted text preview: Chapter 2 I. What is Money? Money- class of assets that serves as an economys medium of exchange Money- portion of our wealth a that is used and generally excepted for payment of goods and services o She has a lot of money Wealth (saving/investment, cash) stock (how much money you have at any point in time) A lot of income a flow variable Function of Money 1. Medium of exchange what actually changes hands 2. Unit of account (prices of things) 3. Store of Value portion of our assets This note is legal tender for all debts, public and private written on $ 4. Standard of the third payment paying off private debts 5. Unilateral Transfer paying off public debts (taxes, court costs) Medium of Exchange- whatever people use to purchase goods and services o Money on Demand- Amount of wealth that people choose to hold in the form of money Money Vs. Barter o Barter - system of exchange in which goods and services are traded directly, with no money involved o Double coincidence of wants- condition needed for barter: each party to transaction must have something the other wants the Unit of Account measure in which prices and salaries are quoted A Store of Value- form in which wealth can be held II. Types of Money Commodity Money- valuable good that serves as the medium of exchange...
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- Spring '08