13. Money, Banks, and the Federal Reserve System

13. Money, Banks, and the Federal Reserve System - Money,...

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Money, Banks, and the Federal Reserve System Money- assets that people are generally willing to accept in exchange for goods and services or for payment of debts Asset – anything of value owned by a person or a firm Commodity money – a good used as money that also has value independent of its use as money – has value independent of its use as money Federal Reserve – the central bank of the United States Fiat money – money, such as paper currency that is authorized by a central bank or governmental body and that doesn’t have to be exchanged by the central bank for gold or some other commodity money. Function of money - Medium of exchange – money serves as a medium of exchange when sellers are willing to accept it in exchange for goods or services - Unit of account – in a barter system , each good has many prices - Store of value- money allows value to be stored easily: if you do not use all your dollars to buy goods and services today, you can hold the rest to use in the future - Standard of deferred payment- money is useful because it can serve as a standard of deferred payment in borrowing and lending Criteria for money as a medium of exchange - The good must be acceptable to most people - It should be of standardized quality so that any two units are identical - It should be durable so that value is not lost by spoilage - It should be valuable relative to its weight so that amounts large enough to be useful in trade can be easily transported
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13. Money, Banks, and the Federal Reserve System - Money,...

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