Monetary Econ Chapter 2 (Part 1)
Monetary Econ Chapter 2 (Part 1) Econ 3310
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This 4 page Class Notes was uploaded by Anthony Welch on Wednesday September 21, 2016. The Class Notes belongs to Econ 3310 at East Tennessee State University taught by Dr. Warren Mackara in Fall 2016. Since its upload, it has received 56 views. For similar materials see Monetary Economics in Economics at East Tennessee State University.
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Date Created: 09/21/16
Monetary Economics Chapter 2 yellow = key term pink = key concept blue = example What is money? What do we use money for? – as a medium of exchange (generally accepted in exchange for most goods and services) - money simplifies and encourages exchange - money facilitates specialization within companies, so they narrow their product line and become much more efficient. - increases the want satisfaction with resources, which means the consumer gets more satisfaction with usage of the resources - Unit of Account/Standard of value: to communicate how much things are worth. (primary) - Store of Value – a way of storing unspent income (secondary) - Standard of deferred payment – used to express terms of debt and also to pay off debt - money helps everyone receive the goods and services they need and want in life - money is a catalyst, not a resource (increases velocity of exchange, not the actual item that is ultimately desired) - liquid assets (liquidity – ease, speed, and convenience you can convert financial instrument to medium of exchange without significant exposure to capital loss) o capital loss – selling financial instrument for less than one bought it for What do we use as money? - paper money, metal coins, plastic cards, electronic transaction transaction costs of exchange – expenses associated with exchanging your goods and/or services. this means there will be less resources available for production and consumption. information – one of the largest costs has to do with information. each company has to advertise and get the word out to everyone what products they offer, so that other companies and people know where to exchange their money or goods to people who want them for the resources they already have. barter system – direct exchange of goods and services without the use of money problems – must have a double coincidence of wants, where both companies have what the other wants. there would have to be multiple transactions to obtain the item(s) you want. this method discourages exchange because it is complicated and tedious. limits specialization because companies want to produce as many goods and services as possible so they can exchange for more products. How the Federal Reserve Measures Money The Money Supply M1 – the sum of currency held by the public and transaction deposits at depository institutions, which are financial institutions that receive their funds primarily from the public such as commercial banks. M2 – M1 plus savings deposits, small-denomination time deposits (issued in amounts less than $100,000), and retail money market mutual funds. DNFD – a measure of outstanding loans and debts accumulated in the present and past years federal: credit market debt of local, state, and federal governments, corporate bonds, mortgages, and consumer credit. nonfederal: other bank loans, debt instruments, and commercial paper 5 Criteria for a “Good” Measure of Money: 1. durable – so value is not lost by spoilage 2. standardized – so that any two units are identical, such as 2 dimes. 3. + value/weight ratio – so expensive things are convenient to buy 4. acceptable to most people 5. divisible – because different things have different values Money Types: Barter (good for good/service for service) Commodity (value comes from something its made into) Full-Bodied (monetary value is same as value as a commodity) Token Money (monetary value exceeds cost of production) Representative Money (monetary value is greater than value of commodity) Credit Money (any future monetary claim against an individual that can be used to buy goods and services) Electronic Money (money balance recorded electronically eg. stored- value card) Role of Technology in Money - technology allows the tracking, transferring, and spending of money to happen much more quickly o online banking o online shopping o Apple Pay
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