EC140 Lecture Notes - Lecture 26: Commercial Bank, Hyperinflation, Money Supply
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EC140 Full Course Notes
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Document Summary
Money: medium of exchange: anything accepted in return for goods/services, barter requires double coincidence of wants anyone specialized in one commodity has to spend longer time searching for satisfactory transactions. Unnecessary when medium of exchange is used: money makes possible the benefits of specialization and the division of labour. Easily recognizable readily acceptable high value relative to weight divisible reasonably. Debasing; melting + creating - common cause of inflation - Bank notes: paper money issued by commercial banks. Gold standard: currency standard where country"s currency is convertible into gold at fixed rate of exchange. Banks made more claims outstanding against them then available in reserves. The smaller fraction held in reserves, the larger the supply of paper currency supported. Good /undebased money out of circulation money/coinage not backed/convertible into anything else but declared by gov as legal tender. Deposit money: money held by public in form of deposits with commercial banks .
