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Unformatted text preview: Chapter 2 I. What is Money? • Money- class of assets that serves as an economy’s 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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This note was uploaded on 02/02/2011 for the course ECON 2035 taught by Professor Stahl during the Spring '08 term at LSU.
- Spring '08