Principles of Macroeconomics - Money and Inflation (Lecture 6.1)

Principles of Macroeconomics - Money and Inflation (Lecture 6.1)

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Principles of Macroeconomics - Money and Inflation (Lecture 6.1) Money Legal tender, such as notes and coins by law. o A check is not legal tender however Definition o Anything that is generally acceptable as a medium of exchange. o In the absence of money, people would need to exchange goods and services directly, which is called barter. Barter requires a double coincidence of wants, which is rare, so barter is costly. Functions: o Medium of exchange o Measure of value (aka unit of account) Measure of value may be inconsistent if using commodities as money (such as Chickens). o Can be used as a store of value. As a store of valu-e, money can be held for a time and later exchanged for goods and services, making money liquid. Liquid means that something can be exchanged easily without any loss of value. Means of deferred payments, making borrowing and lending simpler. Our currency may depend on the confidence of the public towards the government economically. With confidence, people will want currency. A cheque, debit and credit cards are NOT money as they are entitlement to transfer money to another account, rather than money which has a value. o Deposit at the bank is money however, with the use of a credit, debit card or cheque. o
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This note was uploaded on 09/27/2011 for the course FINANCE 1001 taught by Professor Profassorted during the Three '11 term at University of Adelaide.

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Principles of Macroeconomics - Money and Inflation (Lecture 6.1)

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