Lecture 6 - ECONOMICS 100B Professor Steven Wood Lecture 6 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley Do

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ECONOMICS 100B Professor Steven Wood 02/03/11 Lecture 6 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy, or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ANNOUNCEMENTS Problem Set 1 has been posted on bSpace under the Resources tab. All problem sets must be word-processed, and must be turned in to your GSI at the beginning of class next Tuesday. LECTURE Today’s lecture focuses on Chapter 5 and examines Money and Inflation. MONEY Economists define money as a financial asset that has three functions: 1.) Money is used as a medium of exchange . This means that we can use money to pay for goods and services. Additionally, we can use money to pay off debts. 2.) Money also serves as a unit of account, allowing us to measure the value of goods and services in terms of their prices. 3.) Lastly, money functions as a store of value. Money retains purchasing power, so you can pull a bill out of your pocket and use it anytime. Money is thus the most liquid asset, giving you the ability to make immediate transactions. Also keep in mind that money is NOT wealth or income. When we say that someone like Bill Gates is “loaded,” we do not mean that his pockets are literally overflowing with cash. More likely, some of his wealth is held in the form of other assets, such as houses or cars. Likewise, when we say a person “makes a lot of money,” we are not referring to his income, because income is a flow of earnings over time that cannot be immediately used in financial transactions. The U.S. measures money with two monetary aggregates: the M1 money supply and the M2 money supply. M1 = Currency + Travelers’ checks + Demand deposits + Other checkable deposits, where: 1.) Currency consists of paper money and coins. 2.) Travelers’ checks are used just like currency. 3.) Demand deposits are checking accounts. These are known as “demand” deposits because the deposits in your checking account are payable immediately “on you demand.” 4.) Other checkable deposits consist of checking accounts bound by certain limitations, such as interest-bearing checking accounts. M1 totaled $1,634.8 billion in 2009. Historically, since real economic output has been increasing, M1 has been increasing as well.
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This note was uploaded on 02/06/2012 for the course ECON 100A taught by Professor Woroch during the Fall '08 term at University of California, Berkeley.

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Lecture 6 - ECONOMICS 100B Professor Steven Wood Lecture 6 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley Do

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