MGEC71H3 Chapter Notes - Chapter 3: Longrun, Smart Card, Business Cycle
25 Jun 2012
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Output in the economy fell sharply during hyperinflation when transaction costs skyrocketed: evolution of the payments system, payments system is the method of conducting transactions in the economy, gresham"s law. The bad money drives out the good (money: barter, barter is the direct exchange (trade) of goods & services for goods & services. Pros allows agents to obtain a wider array of goods & services (i. e. do not have to be self-sufficient). Cons there can be significant search costs (looking for a double coincidence of wants), high transactions costs, lots of relative prices (& these can be volatile), problems of indivisibilities & lack of anonymity: commodity money (gresham"s law) Pros no longer need double coincidence of wants. Lowers search & transactions costs, fewer (usually more stable) prices, (greater) production specialization, more trade & commerce. All the benefits of fixed exchange rates (e. x.
