What is Money and Where Did it Come From

What is Money and Where Did it Come From - indirect...

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_ What is Money and Where Did it Come From? Why Do We Care about Money? 1. because money affects aggregate demand 2. because monetary disturbances have been associated with some of the most spectacular unstable episodes in economic history, e.g. German Hyperinflation, Great Depression What is Money? medium of exchange store of value unit of account standard of deferred payment Why Money? Money was created to reduce the costs of exchange. Specialization in the production process increases output. But, while each individual may specialize as a producer, she still wants to consume a variety of goods and services. Some exchange system must be devised so that each individual can enjoy the fruits of the specialization of others. customary exchanges barter - double coincidence of wants, lack of a unit of account, indivisibility
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Unformatted text preview: indirect exchange Searches by potential barterers for some double coincidence of wants will be extremely time consuming in a large, highly specialized economy with millions of products and people. Barter was abandoned and a system of indirect exchange was adopted instead. Indirect exchange significantly reduces the time spent on any one transaction. In spite of widely different tastes within a society, there will be a small number of commodities most everybody is will to accept for exchange purposes. Everyone will maintain an inventory of the generally accepted commodities and virtually all exchanges will be made with these commodities. We then have a medium of exchange. We call the medium of exchange money....
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This note was uploaded on 11/22/2011 for the course FIN FIN1100 taught by Professor Bradrifkin during the Fall '09 term at Broward College.

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