Chapter_13

Chapter_13 - Chapter 13 Money Banks and the Federal Reserve...

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Chapter 13: Money Banks and the Federal Reserve System What is money and why do we need it? Money: Assets that people are willing to accept in exchange for goods and services. Asset: Anything of value So according to this definition of money, anything can be used as money as long as the other party in the transaction accepts it as a payment. Barter economy: The system where goods and services are exchanged for other goods and services instead of money. Barter economies have a shortcoming: For such economies to work, the parties to the transaction must want what other party has. Suppose I have two bananas and you have 2 apples. Suppose I want to get an apple. I can trade my banana with your apple only if you want to have a banana. Otherwise the transaction will not take place. So there is an incentive for barter economies to switch to a commodity money. Commodity money is an asset which is used as money and also has a value aside from being money. Gold and precious stones and ivory can be considered commodity money. Transactions are easier with money compared to barter. Introduction of money to the economy leads
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This note was uploaded on 08/21/2011 for the course ECON 2010 taught by Professor Roussel during the Spring '08 term at LSU.

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Chapter_13 - Chapter 13 Money Banks and the Federal Reserve...

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