ECON 3430 Lecture 7: Econ 3430 Lecture 7
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ECON 3430 Full Course Notes
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Meaning of money: money: anything that is generally accepted in payment for goods or services or in the repayment of debts. It is a broad notion: distinct from: Income: flow of earnings per unit of time. Functions of money: medium of exchange: medium of exchange: Eliminates need for double coincidence of wants. Allows for specialization and division of labour: an effective medium of exchange must: Functions of money: unit of account: unit of account: Units in which value is denominated throughout the economy. Reduces transaction costs: consider a store with 10 goods. Without a unit of account, we would need to know 45 prices to exchange one good for another. With a unit of account, we only need 10 prices as everything would be reported in dollars. Functions of money: store of value: store of value: Other assets also serve this function (stocks, bonds, land, houses, art, jewelry, etc )