session3 - Session 3 Money 2 Functions of Money Unit of...

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Unformatted text preview: Session 3 Money 2 Functions of Money Unit of account Medium of exchange Store of value 3 Unit of Account Numeraire functions Information Transparency Welfare enhancing 5 goods 10 relative prices 100 goods 5k relative prices 1000 goods mn relative prices! In a barter economy..... 4 Medium of Exchange Double coincidence of wants? Reducing transactions costs Greater economic efficiency Promoting division of labour Gains from trade Welfare enhancing Standardised Universally accepted Divisible Portable Durable Required attributes Benefits of money 5 Store of Value Returns Liquidity Risk Capital certainty Inflation Money Bonds Equities Goods 6 Payments System Commodity money Paper money Cheques (checks) Electronic transfers Smart cards/phones Personal security Fraud Handling costs Convenience 7 Basic Definitions Narrow money = 1+4 Broad money = 1+4+5 1. Cash in circulation 2. Bank vault cash 3. Commercial bank reserves 4. Sight deposits 5. Time deposits + Monetary base (high powered money) = 1+2+3 8 UK Broad Money 5 10 15 20 99 01 03 05 07 09 %yoy M4 M4 lending (ex securitisations) 9...
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session3 - Session 3 Money 2 Functions of Money Unit of...

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