ECON 2000 Study Guide - Final Guide: Aggregate Demand, Longrun, Potential Output

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Money: any commodity or token that is generally acceptable as a means of payment. Means of payment: method of settling a debt. Money serves three functions: medium of exchange (any object that is generally accepted in exchange for goods and services) Without it, goods/services must be exchanged for other goods and services (called barter) Currency (notes and coins held by individuals and businesses) Deposits (deposits of individuals and businesses at banks/other depository institutions such as trust and mortgage companies, credit unions) M1 (currency outside banks, personal chequable deposits, non-personal chequable deposits) M2 (m1 + personal non- chequable deposits, non-personal non-chequable deposits, fixed term deposits) Since m2 deposits that are not means of payment are easily convertible (liquid) to a means of payment, they are money. Deposits are money, but not cheques because they involve a transfer of deposits. Credit card is not money because swiping it to buy something is an instant loan.