Textbook Notes (368,317)
Canada (161,798)
Economics (1,074)
EC140 (329)

24. Money, Inflation, price level.docx

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Rizwan Tahir

Chapter 24 Money Price Level InflationMoney any commoditytoken that is generally acceptable as means of paymentMeans of payment method of settling a debt No remaining obligation to a transaction3 main functions of money 1 Medium of Exchange o Any object that is generally accepted in exchange for goods and servicesusually used to pay tax o Without this goodsservices must be exchanged directly for other goodsservicesbarterBarter requires a double coincidence of wantsrare o Allows a transaction to be divided spatially and facilitates exchange o Money acts as a medium of exchange because people with something to sell will always accept money in exchange however there are other mediums of exchange such as credito 40 for toonies 25 for loonies 10 for quarters and dimes 5 for nickels 025 for pennies 2 Unit of account does not have to be same as medium of exchange o An agreed measure for stating the prices of goodsservicesreduce information requirementso To get the most out of your budget you must figure out whether something is worth its opportunity cost But that cost is not money its the number of things you can do with that money This is easier when you know the prices of the things you can do all in terms of money 3 Store of value house car work of artneeded to be a means of paymento Money is a store of value because it can be held and exchanged later for goodsservices o The more stable the value of a commoditytoken the better it can act as a store of value and the more useful it is as money No store of value has a completely stable valuefluctuationo Inflation lowers the value of money and other commoditiestokens used as moneyMoney in Canada currency and depositsCurrency general term for bills and coins Notes and coins held by peoplebusinesses Notes are money because government declares them soMost convenient type of money for settling small debts and buying lowpriced items Deposits at banks and other depository institutions money because the owners of deposits can use them to make paymentsMoney held by the public in form of deposits with commercial banks and other institutions 2 official measures of money in Canada 1 M1 consists of currency and chequable deposits of individuals and businesses Does not include currency held by banks or currency and chequable deposits of the government of Canadamoney because M1 consists of currency and chequable deposits money so M1 is money 2 M2 consists of M1all other depositsmoney because the deposits in M2 that are not means of payment are easily converted into a means of payment currency or chequable depositsMoney is the means of payment So the test of whether an asset is money is whether it serves as a means of payment Liquidity is the property of being easily convertible into a means of payment without value lossLiquid assets are savings deposits that are not means of payments Cheques are not money because there is no point when it is actually cash its a written transfer from one specific person to anotherCredit cards are not money because to make the payment you need to have currency or a chequable deposit to pay the credit card company So the credit card is not the means of payment
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