Lecture 4_ chapter 3_Spring 2011

Lecture 4_ chapter 3_Spring 2011 - Lecture 4 What Is Money?...

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Lecture 4 What Is Money? Chapters 3
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Meaning of Money Money (money supply)—anything that is generally accepted in payment for goods or services or in the repayment of debts; Money is a stock concept Money is different from wealth—the total collection of pieces of property that serve to store value ( a stock concept) Money is different from Income— flow of earnings per unit of time ( a flow concept)
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Functions of Money Medium of Exchange: Eliminates the trouble of finding a double coincidence of needs (reduces transaction costs) Promotes specialization A medium of exchange must be easily standardized be widely accepted be divisible be easy to carry not deteriorate quickly
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Functions of Money Unit of Account: used to measure value in the economy Store of Value : used to save purchasing power over time. other assets also serve this function Money is the most liquid of all assets but loses value during inflation
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Lecture 4_ chapter 3_Spring 2011 - Lecture 4 What Is Money?...

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