Chp. 11 - The Monetary System

Chp. 11 - The Monetary System - Chp. 11 - The Monetary...

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Chp. 11 - The Monetary System Functions of Money: o The medium of exchange function of money provides an accepted method of payment for goods and services. o The store of value function of money provides a means of transferring purchasing power from the present to the future. o The unit of account function of money provides a consistent means of posting prices of different goods and services. Fiat money has no intrinsic value. o It is accepted simply because the government has declared that it is "legal tender," meaning that it is a valid means of payment. Commodity money is a form of money that has intrinsic value. o Gold, silver, diamonds, and cigarettes are examples of items that could be considered commodity money. M1 consists of coins and currency in circulation, traveler's checks, and demand deposits (funds in checking accounts). M2 consists of everything in M1 plus savings deposits, small time deposits (under $100,000), and money-market mutual funds.
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Chp. 11 - The Monetary System - Chp. 11 - The Monetary...

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