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The Monetary System.docx

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Department
Economics
Course
ECO1302
Professor
All Professors
Semester
Fall

Description
The Monetary System Chapter 10Three distinct functions of moneyMedium of exchangeoAvoids the very cumbersome process of barter which stems from the double coincidence of wantsUnit of accountoUsed as a common denominator for the value and the relative value of goods and services or creditsdebtsA candy bar might be worth 3 lollypops and a trip to France might be worth 2 trips to the Canadian Rockies wouldnt it be easier to compare the value of all of these in terms of Store of valueoBrings in the dimension of timeoUsually production and exchange are not simultaneous activities especially with investment activityoMoney should allow a claim on goods and services in the futureIn other words it has to hold most of its value over timeCaution it is very easy to confuse the latter 2 function of moneyThus it is a candidate for an exam question History of MoneyChallenges has always been to give money a relatively stable valueoIt always has to be supported by somethingCommodity or metallic moneyoGold silver were the recognizable benchmark or base commodities which had intrinsic value in addition to the exchange valueoOne could redeem convert paper currency for gold Before paper money they used to use Gold and silver
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