ECON 1BB3 Lecture Notes - Fine Art, Debit Card

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Econ 1BB3 Lecture Note February 14th, 2013
Question: Is my MasterCard an asset?
Answer: No
Money: An asset regularly used to buy goods and services
Money has 3 functions:
1. Medium of Exchange
2. Unit of Account
3. Store of Value
Liquidity: The ease with which an asset can be converted into the economy’s
medium of exchange.
-When prices rise, the value of money falls
Q: Which list ranks assets from most to least liquid?
A) Currency, fine art, stocks
B) Currency, stocks, fine art
C) Fine art, currency, stocks
D) Fine art, stocks, currency
Answer: B
Why? Stocks are more liquid then fine art because you have to find a buyer for fine
art. For stocks, you can simply call your stock breaker to convert them into medium
of exchange.
Commodity versus Fiat Money
Commodity Money: Money that takes the form of a commodity with intrinsic value.
Fiat Money: Established as money by government decree, with no intrinsic value.
Money in the Canadian Economy:
M = C + D
Currency (C): Paper bills and coins in the hands of the public.
Demand Deposits (D): The balances in bank accounts that depositors can access on
demand by writing a cheque or using a debit card.
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Document Summary

Money: an asset regularly used to buy goods and services. Money has 3 functions: medium of exchange, unit of account, store of value. Liquidity: the ease with which an asset can be converted into the economy s medium of exchange. When prices rise, the value of money falls. Q: which list ranks assets from most to least liquid: currency, fine art, stocks, currency, stocks, fine art, fine art, currency, stocks, fine art, stocks, currency. Stocks are more liquid then fine art because you have to find a buyer for fine art. For stocks, you can simply call your stock breaker to convert them into medium of exchange. Commodity money: money that takes the form of a commodity with intrinsic value. Fiat money: established as money by government decree, with no intrinsic value. Currency (c): paper bills and coins in the hands of the public.

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