final topics - Econ Extra Topics (Ch. 18, 19, 20) STUDY...

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Econ Extra Topics (Ch. 18, 19, 20) 22:36 STUDY CONTRACTIONARY VS. EXPANSIONARY ECONOMIC POLICIES Expansionary policies increase the deficit because G goes up and T goes down G in the form of unemployment insurance and income assistance Contractionary policy decreases budget deficit because T goes up and G goes down As economy grows, tax revenue increases and unemployment insurance and income  assistance decrease 3 Functions of Money Acts as a medium of exchange What we use to buy things More efficient than barter system, which requires coincidence of wants Both people in transaction must want the other person’s product; this is difficult to  achieve, so number of transactions in a barter economy is low Acts as a store of value Doesn’t have to be spent today, can be saved and has value in future Allows us to defer our purchases Inflation undermines this function Acts as a unit of account When we value things, we put them in dollar terms This allows us to make instantaneous comparisons of product’s value Liquidity Ease with which assets can be converted to medium of exchange Cash – most liquid asset because it is the medium of exchange Money Aggregates (M1 and M2) M1 – narrower definition of money (more liquid) Currency and coins ($850 billion) Demand Deposits – checking balances; money available on demand ($775 billion) TOTAL M1: 1 trillion 625 billion
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This note was uploaded on 03/19/2012 for the course COMM 200 taught by Professor Young during the Fall '11 term at University of Delaware.

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final topics - Econ Extra Topics (Ch. 18, 19, 20) STUDY...

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