Econ 2H03 - Chapter 4 Notes - 1

Econ 2H03 - Chapter 4 Notes - 1 - Money Definition Money...

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Money: Definition Money is the stock of assets that can be readily used to make transactions. 4-1 Components of Wealth A trade-off among the factors that make an asset desirable: a high expected return, low risk, liquidity and term to maturity. Money – highly liquid, inflation risk, short term to maturity Bonds – differing default risk, term to maturity and liquidity Stocks – dividends not guaranteed, substantial price fluctuations, most shares in large corporations is liquid, no maturity Real Estate – very illiquid, provides shelter
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Unformatted text preview: services, no maturity 2H03 Spring 2013 4-2 Money: Functions • Medium of exchange: Money accepted as payment for goods & services • Store of value: transfers purchasing power from the present to the future • High inflation erodes the store-of-value function of money • Unit of account: the common unit by which everyone measures prices and values Money: Types 1. Fiat money has no intrinsic value example: dollar bills or paper currency 2. Commodity money has intrinsic value examples: gold coins, cigarettes in P.O.W. camps...
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