24_Money

24_Money - Money Money Readings Profs Textbook Chapter 13...

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Money Money Readings Prof’s Textbook Chapter 13 “Money and Banks”
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Two Quick Questions How many of you view money as one of the three most important things in your life? Close your eyes and answer the following question ……………………….?
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2 nd Question: What Is Money? Money is anything a group of people believe is valuable. Money is any set of items regularly used to improve the buying and selling of goods and services. Money is FAITH!
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Even the U.S. Gov. States This Go to http://www.treas.gov/education/faq/currency/legal-tender.shtml
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Functions of Money Money are items that perform 3 functions Medium of exchange Unit of account Store of value
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Medium of Exchange You sell a TV to a friend. What do you get? Money. You buy a DVD. What do you give up? Money Money is the medium that is Exchanged for goods and services
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Medium of Exchange A medium of exchange is anything that is readily acceptable as payment. In prisoner of war camps, people paid in cigarettes. Island of Yap people pay in huge stone wheels. Many of our slang words for money come from medium of exchange. He is not worth their salt. He/She is as good as gold How many clams for that?
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Unit of Account A unit of account is the denominator of quoting prices of the yardstick people use to post prices and record debts Oil trade Foreign travel Dannon yogurt
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Store of Value A store of value is an item that people can use to transfer purchasing power from the present to the future. Driveway Coal miners Gold coins
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What is money If something passes all three tests Is medium of exchange Is store of value Is unit of account then that is money. Near money: Something that matches all 3 tests in certain circumstances. Checks – Not all stores takes checks Meal points – Not accepted off campus
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Are Credit Cards Money? Credit Cards are not money. Why? Because in simple terms, money is an asset. An asset is anything you hold that makes you wealthier. Diamond Cash When you use a credit card, you just incurred a debt. Debts make you poorer (less wealthy). Hence, credit cards are not money.
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History of Money Money has gone through 4 distinct phases Barter Commodity money Money backed by commodities Fiat money In times of economic crisis the phases are often repeated.
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Barter Need Double Coincidence of Wants I want what you have You want what I have. Both statements need to be true simultaneously. Coordination problem. Examples Grade school lunch Conch shell Cuba Results Encourages generalization. Because specialization problematic and divisibility problems
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Items with intrinsic value Examples: Gold, silver, cigarettes, salt, cowry shells, nails Card trading Removed the double coincidence of wants problem, encouraged specialization and improved divisibility.
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This note was uploaded on 04/17/2011 for the course EC 102 taught by Professor Zagorsky during the Spring '08 term at BU.

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24_Money - Money Money Readings Profs Textbook Chapter 13...

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