Chapter 3

Chapter 3 - Chapter 3-What Is Money Meaning of Money What...

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Chapter 3 - What Is Money? Meaning of Money •What is it? •Money (or the “money supply”): anything that is generally accepted in payment for goods or services or in the repayment of debts. •A rather broad definition •Money (a stock concept) is different from: •Wealth: the total collection of pieces of property that serve to store value •Income: flow of earnings per unit of time (a flow concept) Functions of Money •Medium of Exchange: –Eliminates the trouble of finding a double coincidence of needs (reduces transaction costs) –Promotes specialization •A medium of exchange must –be easily standardized –be widely accepted –be divisible –be easy to carry –not deteriorate quickly •Unit of Account: –used to measure value in the economy –reduces transaction costs •Store of Value: –used to save purchasing power over time. –other assets also serve this function –Money is the most liquid of all assets but loses value during inflation Evolution of the Payments System
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Chapter 3 - Chapter 3-What Is Money Meaning of Money What...

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