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Chapter 10

ECON 1000 Chapter Notes - Chapter 10: Barter, Reserve Requirement, Canada Act 1982

Course Code
ECON 1000
Troy Joseph

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Chapter 10 The Monetary System
If there was no money, people would rely on barter: exchange of one G/S 4 another
oWill have trouble allocating scarce resources efficiently
oTrade requires double coincidence of wants: 2 people each have G/S other person wants
The Meaning of Money
Money: set of assets in economy that people use to buy G&S from other people
The Functions of Money
1. Medium of exchange: item buyers give to sellers when they purchase G&S.
2. Unit of account: yardstick people use to post prices and record debts. Money is
the unit of account.
3. Store of value: an item people can use to transfer purchasing power from the
present to the future. Wealth is the total of all stores of value (including money
and nonmonetary assets)
Liquidity: ease which an asset can be converted into economy’s medium of exchange
Money is economy’s medium of exchange, therefore it is the most liquid asset available
When prices rise, value of money falls
The Kinds of Money
Commodity Money: money that takes the form of a commodity with intrinsic value (would have
value even if it were not being used as money)
oIe. Gold
oIe. Cigarettes
Fiat Money: money without intrinsic value (established as money by government decree)
oIe. Can’t use monopoly money to pay for things, but can use paper money provided by
Money in the Canadian Economy
Money Stock: quantity of money circulating in the economy
Currency: paper bills & coins in hands of the public, most widely accepted medium of exchange
in our economy PART OF MONEY STOCK
2 measure money stock, include Demand Deposits: balances in bank accounts that depositors can
access on demand by writing a cheque or using a debit card
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