Textbook Notes (368,326)
Canada (161,799)
Economics (279)
ECON 1000 (180)
Chapter 10

Chapter 10

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ECON 1000
Troy Joseph

Chapter 10 The Monetary System • If there was no money, people would rely on barter: exchange of one G/S 4 another o Will have trouble allocating scarce resources efficiently o Trade 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 o 3 FUNCTIONS IN ECONOMY: 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) o Ie. Gold o Ie. Cigarettes • Fiat Money: money without intrinsic value (established as money by government decree) o Ie. Can’t use monopoly money to pay for things, but can use paper money provided by government 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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