ECN 211 L15 Money and Banks_BB

ECN 211 L15 Money and Banks_BB - ECN 211 Macroeconomic...

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05/13/09 1 ECN 211 Macroeconomic Principles L15:  Money and Banks
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05/13/09 2 What is Money? Money … anything that is generally accepted to sellers in exchange  for goods and services Examples Cigs in POW camps
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05/13/09 3 Wealth and Money People hold their wealth in many different forms: –  Property –  Stocks –  Cash (Most Liquid Asset) –  Banks Accts and Bonds Why? – A  liquidity/return  trade-off – Note: we are going to ignore the risk/return tradeoff
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05/13/09 4 Liquidity Liquid asset … an asset that can easily be exchanged for goods and  services Higher  liquidity implies  lower  turns Money is the most  Liquid – Therefore has the lowest (zero return).
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05/13/09 5 Functions of Money ‘Money is a matter of functions four  – a medium, a measure, a standard and a store’
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05/13/09 6 _Medium of Exchange_ – It lowers  _transaction costs_ – Do not need the “double coincidence of wants” _Measure of value_ – All goods and services are priced in _common  monetary units_ – Allows us to compare  _relative prices_  easily. – Only need _one set_of prices.
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05/13/09 7 _Store of value_ – Money retains its value through time  _usually_ – Need to control inflation. Standard of deferred payment_ – Money may be used to make  _future payments_ – Debt is written in dollar amounts.
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ECN 211 L15 Money and Banks_BB - ECN 211 Macroeconomic...

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