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Chapter 3

Chapter 3 Mishkin Summary.docx

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Economics (Arts)
Course Code
ECON 302
Tom Velk

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Chapter 3 Mishkin Summary 09/27/2013 1. To economists, the word  money  has a different meaning from  income  wealth . Money is  anything that is generally accepted as payment for goods or services or in the repayment of debts.  2. Money serves three primary functions: as a medium of exchange, as a unit of account, and as a  store of value. Money as a medium of exchange avoids the problem of double coincidence of wants that  arises in a barter economy by lowering transaction costs and encouraging specialization and the  division of labor. Money as a unit of account reduces the number of prices needed in the economy,  which also reduces transaction costs. Money also functions as a store of value, but performs this role  poorly if it is rapidly losing value due to inflation.  3. The payments system has evolved over time. Until several hundred years ago, the payments system  in all but the most primitive societies was based primarily on precious  metals. The introduction of paper currency lowered the cost of transporting money. The next major  advance was the introduc
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