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Economics 1022A/B Chapter Notes - Chapter 24: Potential Output, Longrun, Reserve Requirement

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21 Jun 2016

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Western University

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Economics 1022A/B

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ECON 1022A/B Full Course Notes

ECON 1022A/B Full Course Notes

Document Summary

Money= any commodity or token that is generally acceptable as a means of payment. Means of payment= a method of setting a debt. Any object that is generally accepted in exchange for good/services. Barter- without money", , requires a double coincidence of wants. Money acts as a medium of exchange because people with something to sell will always accept money in exchange for it. Money is not the only medium of exchange---- you can buy with credit card, but it is not it doesn"t make a final payment, and the debt it creates must eventually be settled money by using money. An agreed measure for stating the prices of good/services. Without this, pricing in terms of $ overcomes this. Money is a store of value because it can be held an exchange later for good/services. ( if not store of value, it couldn"t be means of payment)

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Related Questions

A13. Credit cards are considered to be "money substitutes" instead of money because (A) (B) (C) (D) (E) they cannot serve as a temporary medium of exchange. credit card accounts are not chequable. money must eventually be used to pay for the transaction. the only function of money they can perform is to serve as a store of value. they are not acceptable to pay for purchases.

Money is often used to purchase items in society, but bartering was common in the past. Bartering is the trading of one good or service for another good or service.

Explain your experiences with bartering. List at least 1 advantage and 1 disadvantage to bartering.

Most developed countries in the world use flat money. This means that their money is not backed by gold or silver. The value is related to only the faith in the country that backs it. The US has used flat money since the 1970s.

Why do you think most developed countries use flat money? Would it be practical to switch back to a commodity (like gold or silver) backed money system? Why or why not?

Use at least two of the following terms in your answer: Asset

Flat Money

Store of value

Unit of account

Medium of exchange

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Question 1. Which of the following is not included in M1?
a- currency
b- demand deposits
c- traveller's checks
d- credit cards

Question 2. When the Fed purchases $200 worth of government bonds from the public, the U.S. money supply eventually increases by

a- more than $200.
b- exactly $200.
c- less than $200.
d- None of the above are correct.

Question 3. Savings deposits are included in

a- M1 but not M2.
b- M2 but not M1.
c- M1 and M2.
d- neither M1 nor M2.

Question 4. Credit cards

a- defer payments.
b- are a store of value.
c- have led to wider use of currency.
d- are part of the money supply.

Question 5. Table 16-3.
The First Bank of Fairfield

Assets	Liabilities
Reserves $2,000	Deposits $10,000
Loans 8,000

Refer to Table 16-3. The reserve ratio for this bank is

a- 0 per cent.
b- 20 percent.
c- 80 per cent.
d- 100 per cent.

Question 6. If an economy uses silver as money, then that economy's money

a- serves as a store of value but not as a medium of exchange.
b- serves as a medium of exchange but not as a unit of account.
c- is commodity money.
d- has no intrinsic value.

Question 7. In the United States, currency holdings per person average about

a- $125; one explanation for this relatively small average is that many people use credit and debit cards to make transactions.
b- $125; one explanation for this relatively small average is that U.S. citizens hold a lot of foreign currency.
c- $3,700; one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange.
d- $3,700; one explanation for this relatively large average is that U.S. citizens hold a lot of foreign currency.

Question. 8. Money is the most liquid asset available because

a- it is a store of value.
b- it is a medium of exchange.
c- it is a unit of account.
d- it has intrinsic value.

Question 9. All Fed purchases and sales of

a- corporate stocks and bonds are conducted at the New York Fed's trading desk.
b- government bonds are conducted at the New York Fed's trading desk.
c- real estate and other real assets are conducted by the Federal Open Market Committee.
d- All of the above are correct.

Question 10. The Fed's policy decisions have an important influence on

a- inflation in the long run and employment and production in the short run.
b- inflation in the long run and employment and production in the long run.
c- inflation in the short run and employment and production in the short run.
d- inflation in the short run and employment and production in the long run.

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