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ECON 2010
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CHAPTER 13Money any asset that people are willing to accept in exchange for goods and services or for payment of debtsBarter Economies goods and services are traded directly for goods and services Double coincidence of wants is required which is both parties wanting to trade goodsCommodity money a good used as money that also has value independent of its use as money such as the governor of Tennessees deer skin salary of 10000 a year or gold Depedent heavily on purity which is a problem because people can easily dilute the purity of metalsFiat Moneyhas no value except for the use as money such as paper money which is not backed by any gold Dollar bills are used because households and firms both have confidence that the money will not lose its value in the time that the money is held Why do we need money by making exchange easier money allows for specialization and higher productivityFunctions of money medium of exchange unit of account store of value standard of deferred payment Medium of Exchange when sellers are willing to accept something in exchange for goodsUnit of accountsince everything costs dollars there is only one price as opposed to many cows wheat axes Everything has a price in dollarsStore of Value money allows value to be stored easily if you dont use it today you can use it tomorrowLiquidity the ease with which an asset can be turned into a medium of exchangestockcashStandard of Deferred Payment Criteria for Medium of Exchangeacceptable by most people standardized quality so any two units are identical durable so values is not lost by spoilage valuable relative to amount so even large quantities used for trade are easy to carry should be divisible because different goods are valued differentlyMI currency amount of paper money in circulation not being held by the government or banks value of all checking account deposits at bank value of travelers checksM2 Currency checking accounts value of travelers checks savings accounts and small denomination time deposits which are like savings accounts but they have a specific time on them Because the money supply includes checking and savings accounts the bank has a large role in how much is in the money supplyCredit cards are not in the money supply because it is liking taking a small loan from the bank that issued the credit card and it is not really paid till the end of the month when the cc bill is
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