11 Flashcards
barter system
ie - trading
inefficient and tedious
purposes of currency
medium of exchange
acts as store of value -keeps its value over time
unit of account - measures the value of things
gold standard
US currency used to be redeemable for a certain amount of gold
money produced was equal to the amount in the gold reserves
1930’s gov’t moves away and uses fiat currency instead
milton friedman
nobel prize winning economist
“the pieces of green paper have value because everyone thinks they have value”
lenders
households or organizations that have money in the now and need it to grow at a rate bigger than inflation to have money in the future
borrowers
businesses - need money now for capital and will gain money in the future when finish products are sold
gov’t - need to borrow money because they spend more than they bring in
financial system
network of institutions, markets, and contracts that bring together borrowers and lenders
bond market
gov’t/large organizations sell bonds to lenders
contract that stipulates the borrower will make regular payments with interest to repay the borrowed money at a set date in the future (ie - IOU)
stock market
lenders can buy stock to gain money
borrowers use shareholder money to expand/grow their business
equity
difference between the value of the assets/interest and cost of liabilities of something owned
financial instrument
tradeable asset of any kind
financial institutions
establishment conducting transactions such as investments, loans, deposits
