Homework ECO 201 Week 5

Homework ECO 201 Week 5 - first thing to understand is that...

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Question 1 Pg 641 1. What distinguishes money from other assets in the economy? Money is defined as the asset used regularly by people to purchase goods and services from other people. There are other assets that make up the economy. For example, if you owned a stock in a company, you might be considered wealthy, but you couldn’t buy a meal with a stock certificate. Money is used as a medium of exchange, it is used as an accounting tool and it has a defined value. It is also liquid or portable. Question 1 Pg 666 1. Explain how an increase in the price level affects the real value of money. The value of money is determined by supply and demand much like any other commodity. The
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Unformatted text preview: first thing to understand is that when the price of a good or service rises (inflation), it probably says more about the value of money than about the price of the good or the service. While some like to point to different products and their rising prices as key indicators of inflation, sometimes these people miss the point that inflation is an economy wide phenomenon that first and foremost affects and economy’s medium of exchange. So fundamentally, the rise in prices of goods and services means a lower value in our money....
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