ECN 204 Chapter : ECN 204 CH10.docx

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Document Summary

Without money, trade would require barter, exchange of one g & s for another. Require a double coincidence of wants unlikely occurrence that two people each have a good other wants. Most people would have to spend time searching for other to trade with a huge waste of resources. Searching is unnecessary with money, set of assets that people regularly use to buy g & s from other people. Medium of exchange: an item buyers give to sellers when they want to purchase g & s. Unit of account: yardstick people use to post prices and record debts. Store of value: item people use to transfer purchasing power from present to future. Commodity money: takes form of a commodity with intrinsic value (example; gold coins, cigarettes in pow camps) Fiat money: money without intrinsic value, used as money because of government decree (example: canadian dollar) Money supply (money stock): quantity of money available in economy.