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AP Macro > 5.01: Defining Money + MS > Flashcards

5.01: Defining Money + MS Flashcards

1
Q

Problems with the barter system

A
  1. Double coincidence of wants
  2. Splitting of goods
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2
Q

Money

A

Anything accepted for goods and services

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3
Q

2 types of money

A

Commodity Money (Money w/ intrinsic value)

Fiat Money (Serves as money w/ no other value, value comes from gov declaring it’s money)

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4
Q

3 Functions of Money

A
  1. Medium of Exchange
  2. Store of Value
  3. Unit of Account
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5
Q

Medium of Exchange

A
  1. Universally accepted as payment, same value to all users
  2. Easy to carry
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6
Q

Store of Value

A
  1. Stores purchasing power for future
  2. Reliable and trustworthy
  3. Relatively consistent value over time
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7
Q

Unit of Account

A
  1. Common measure of how to value goods and services
  2. Easily divisible
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8
Q

Monetary Base (MO)

A

Bank reserves + CIC (currency in circulation)

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9
Q

Money Supply (M1)

A

CIC + checking accounts (demand deposits) + savings (liquid deposits)

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10
Q

M2

A

M1 + “near-moneys”

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11
Q

“Near-moneys”

A
  1. Short Time Deposits (CDs)
  2. Money Market Funds
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12
Q

Financial Markets

A

network of institutions that link savers + borrowers

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13
Q

Stocks/Equities

A

Represent ownership of a firm and a claim to a portion of future profits (Generally offer higher rates of return but carry higher risk)

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14
Q

Bond

A

Loans made to companies or governments that are paid back over time with interest (Generally offer lower rates of return but carry less risk)

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15
Q

Borrower

A

Bond issuer/seller

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16
Q

Lender

A

Bond owner/buyer

17
Q

Face value

A

money amount the bond will be worth at maturity

18
Q

Coupon rate

A

rate of interest the issuer will pay on the face value

19
Q

Bond prices and interest rates are….

A

INVERSELY RELATED

20
Q

Increasing interest rates makes the demand for previously issued bonds decrease since a higher rate of return is now available, therefore:

A

Price level decreases

AP Macro (5 decks)

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