ECO365H5 Lecture Notes - Lecture 2: Foreign Exchange Market, Market Liquidity, Money Supply

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15 Nov 2016
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Money eliminates the enormous search costs connected with a barter system because money is universally accepted. It eliminates these search costs by enabling an individual to sell the goods and services she produces to people other than the producers of the goods and services she wishes to consume. The convention of quoting prices in money terms simplifies economic calculations by making it easy to compare the prices of different commodities. Because money can be used to transfer purchasing power from the present into the future, it is also an asset, or a store of value. This attribute is essential for any medium of exchange because no one would be willing to accept it in payment if its value in terms of goods and services evaporated immediately. Money"s usefulness as a medium of exchange, however, automatically makes it the most liquid of all assets. Currency and bank deposits on which checks may be written certainly qualify as money.

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