ECON-2120 Lecture Notes - Lecture 7: Money Supply, Gdp Deflator, Deflation
5 Apr 2017
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Without pennies, prices will round to 5 cent intervals. Most prices now are rounded to the nearest 9 cents, or even 99 cents. These prices may round from 99 cents to 95 cents. Money is intended to make transactions easier. The existence of pennies makes transactions more difficult. Claim: we lose value by spending 1. 8 cent resources to get a 1 cent coin. Implication: by this logic, we can get rich by printing bills at a tiny cost over and over again. The value from a macroeconomic standpoint is not related to the denomination. Money is not a source of material wealth for a country. Pennies are meant to facilitate very small transactions and allow prices to be more precise. The comparison between a penny"s 1. 8 cent minting cost and its 1 cent official value is largely irrelevant. Money: a widely accepted means of exchange. Ex: gold & silver, animal skins in the frontier.
