ECON 2035 : ECON Test 1 Notes
Document Summary
* anything used as money should fulfill these functions. Liquid means to be easily changeable into another asset or good. Money is a financial asset that makes the real economy function smoothly. Commodity money a good used as money that also has value independent of its use as money. Money vs. credit: credit cards are not money, credit car balances are assets of a bank in the form od a prearranged loan and liabilities of the credit card user, a debit card is considered money. M1 currency in hands of public in circulation, checking account deposits in banks and holdings of traveler"s checks: currency all paper money and coins, traveler"s checks, checking accounts. M2 m1 + other liquid assets: everything that falls under m1 will also fall under m2, savings, mutual fund shares. Compensation for inflation if prices rise, the payments received will buy fewer goods and services. Compensation for default risk: the borrower might default on the loan.
