Lecture9_Money_macroI_FV

Lecture9_Money_macroI_FV - Topic 9: Principles of...

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Money Supply, Central Bank, Inflation and Monetary Policy Dr. Fidel Gonzalez Department of Economics and Intl. Business Sam Houston State University Money, get away Get a good job with more pay and your O.K. Money it's a gas Grab that cash with both hands and make a stash New car, caviar, four star daydream, Think I'll buy me a football team Money get back I'm all right Jack keep your hands off my stack ------- Money, Pink Floyd (The Dark Side of the Moon) Topic 9: Principles of Macroeconomics
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Money Supply and The Central Bank Now, we are going to analyze the role of money in the economy and how that affects the overall economy. First, we need to define money, its functions and different types. Money: set of assets in the economy that people regularly use to buy goods and services from other people. In other words, anything that you use to buy and sell things is consider a money. For example, a friend of mine in college use to exchange beer for services in our dorm. He would exchange a six pack of shiner bock beer to have a roommate washing his clothes. You can see how the beers in this example are considered money.
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Money Supply and The Central Bank: functions of money Money has three main functions: 1) Medium of exchange: use to purchase good and services. Money as a medium of exchange is very useful because it avoids the double coincidence of wants. If there is no money, if you want to buy a car you need to find a car salesman that wants the good that you have to offer. For example, I would have to find a salesman that is willing to give a car in exchange for a set of lectures in economics. That will be very difficult because it requires the double coincidence of wants. I need to want what the salesman has and the salesman needs to want what I have. Money as a medium of exchange makes trade so much easier and faster. If there is money, all I need to do is find someone that is willing to pay for my economics lectures and later use the money to buy a car.
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Money Supply and The Central Bank: functions of money 2) Unit of account: money is how prices are posted. All goods and services are measured in money terms. This makes comparisons between goods very easy. 3) Store of value: transfer purchasing power from today to the future. Money as a store of value allows you to store value so that in the future you can buy goods and services. For example, if you get paid 100 dollars today you will spend $60 with your friends but you may want to hold on to the remaining $40 so that you can buy food next week. Money allows to store value so that in the future you can buy goods and services. When there is inflation money is not a very good store of value because you can less things in the future.
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Money Supply and The Central Bank: types of money We are going to consider two types of money 1) Commodity money: this money that has intrinsic value. What that means is that it is money that is valuable by itself. For example: Gold: it was used as a currency for many centuries, but gold it is also valuable
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Lecture9_Money_macroI_FV - Topic 9: Principles of...

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