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Economics (923)
ECN 204 (281)
Chapter 10

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Ryerson University
ECN 204
Christos Shiamptanis

Chapter 10 The Monetary SystemBarter The trade of one good for anotherFor barter to work need double coincidence of wantsDouble Coincidence of Wants the unlikely even that two people each have a good or service that the other wantsAs money flows from person to person it facilities production of trade thereby allowing each person to specialize in what he or she does best and raising everyones standard of livingThe Meaning of MoneyMoney set of assets in the economy that people regularly use to buy goods and services from other peopleMoney includes only those few types of wealth that are regularly accepted by sellers in exchange for goods and servicesThe Functions of Money Medium of exchange an item that buyers give to sellers when they purchase goods and servicesUnit of account the yardstick people use to post prices and record debts Store of value item that people can use to transfer purchasing power from the present to the futureWealth total of all stores of value including both money and nonmonetary assetsLiquidity ease with which an asset can be converted into the economys medium of exchange cashStocks and bonds relatively liquid painting or a hockey card is less liquidWhen people decide in what form to hold their wealth have to balance the liquidity against the assets usefulness as a store of valueWhen prices rise the value of money fallsThe Kinds of Money Commodity money money takes the form of a commodity with intrinsic valueIntrinsic value item would have value even if it were not used as money o Eg gold cigarettes Gold standard when economy uses gold as money or uses paper money that is convertible into goldFiat money money without intrinsic valueFiat and order or decree o Eg Canadian govt has decreed to dollars to be valid moneyMoney in the Canadian Economy Money stock quantity of money circulating in the economy
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