Ch 3 Flashcards

1
Q

Money

A

or money supply; anything that is generally accepted as payment for goods or services or in the repayment of debts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Money as a stock concept

A

WEALTH: the total collection of pieces of property that serve to store value.
INCOME: flow of earnings per unit of time (a flow concept)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Functions of money:

Medium of Exchange

A
  • Eliminates the trouble of finding a double coincidence of needs (reduces transaction costs)
  • promotes specialization.
  • a medium of exchange must:
    1. be easily standardized
    2. be widely accepted
    3. be divisible
    4. be easy to carry
    5. not deteriorate quickly
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Functions of money:

UNIT OF ACCOUNT:

A
  • used to measure value in the economy

- reduces transaction costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

STORE OF VALUE

A
  • used to save purchasing power over time.
  • other assets also serve this function.
  • Money is the most liquid of all assets but loses value during inflation.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Evolution of the payment system:

COMMODITY MONEY

A

Valuable, easily standardized and divisible commodities ( eg precious metals, cigarettes)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Evolution of the payment system:

FIAT MONEY:

A

Paper money decreed by governments as legal tenders.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Evolution of the payment system:

CHECKS:

A

an instruction to your bank to transfer money from your account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Evolution of the payment system:

E-PAYMENT (ONLINE BILL)

A

Paying bills online

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Evolution of the payment system:

E-MONEY

A

(Electronic money):

  • Debit Card
  • Stored value card (smart card)
  • E-cash
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Measuring Money

Construct monetary aggregates using the concept of liquidity

A

M1 (most liquid assets) = currency + traveler’s check + demand deposits + other checkable deposits

M2 (adds to M1 other assets that are not so liquid) = M1 + small denomination time deposits + savings deposits and money market deposit accounts + money market mutual fund shares.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

The federal reserve’s monetary aggregates:

A

M1 vs M2: does it matter which measure of money is considered?
M1 and M2: can move in different directions in the short run
Conclusion: the choice of monetary aggregate is important for policy makers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly