ECON 1000 Chapter Notes - Chapter chapter 10: Fiat Money, Canadian Imperial Bank Of Commerce, Commodity Money

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Money has 3 functions in the economy: it is a medium of exchange, a unit of account, and a store of value. A medium of exchange is an item that buyers give to sellers when they purchase goods and services. A unit of account is the yardstick people use to post prices and record debts. A store of value is an item that people can use to transfer purchasing power from the present to the future. Economists use the term liquidity to describe the ease with which an asset can be converted i(cid:374)to the e(cid:272)o(cid:374)o(cid:373)(cid:455)"s (cid:373)ediu(cid:373) of e(cid:454)(cid:272)ha(cid:374)ge. Be(cid:272)ause (cid:373)o(cid:374)e(cid:455) is the e(cid:272)o(cid:374)o(cid:373)(cid:455)"s (cid:373)ediu(cid:373) of exchange, it is the most liquid asset available. When money takes the form of a commodity with intrinsic value, it is called commodity money. The term intrinsic value means that the item would have value even if it were not used as money. Money without intrinsic value is called fiat money.

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