ECO 1302 Study Guide - Barter, Quantitative Easing, Excess Reserves
Document Summary
In other words, it has to hold most of its value over time. Caution: it is very easy to confuse the latter 2 function of money: thus it is a candidate for an exam question. The signature means nothing- there"s a signature on worthless currencies. What gives fiat money value: people"s faith that they can exchange it for concrete goods and services. Confidence in the value of the currency now and in the future is crucial. Without it, chaos: ensured by reasonably low inflation and adequate levels of economic activity, hyperinflation leads to economic and social and political catastrophe. Monetary aggregates: there are several definitions of the money supply. In decreasing order of liquidity: m1=currency + dd (demand deposits. M2= m1+td(term deposits) +savings deposits: these are stocks quantities, and hence cannot be compared to gdp figures, which are flow quantities.
