EC140 Lecture Notes - Lecture 13: Excess Reserves, Money Creation, Fiat Money
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EC140 Full Course Notes
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Document Summary
Money as a medium of exchange: anything that is generally accepted in return for goods and services, if there were no money, goods would have to be exchanged in a system of barter. Barter is very ineicient due to double coincidence of wants. Money as a store value: without high inlaion, money retains its value very well. Money as a unit of account: used to keep our inancial accounts. Money has evolved over ime taking various diferent forms: metallic money. Years ago, market value of metal was equal to face value the coin. Bad money drives good money out of circulaion: paper money. Paper money was iniially backed by precious metal. Oten referred to as bank notes (issued by banks: fracionally backed paper money. Goldsmiths and banks began to issue more notes than the amount of gold held in their vaults: fiat money. Money that is neither backed by nor converible into anything else.