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.
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