Chapter 3 Flashcards
What is wealth?
Total collection of pieces of property that serve to store value
What is currency?
Paper coins and money
What is income?
Flow of earnings per unit of time
What is a stock?
A certain amount given at a point in time
What is money?
Anything accepted as a payment for a good or service or in repayment of debt and distinct from income and wealth
What are the functions of money?
Medium of exchange
Unit of account
Store of value
What is a medium of exchange?
Used to pay for goods or services
Promotes efficiency by minimizing time spent exchanging goods and services
What is a transaction cost?
Time spent trying to exchange goods or services
What is a double coincidence of wants?
They have to find someone who has a good or service they want and who also wants the food and service they have to offer
Bater community
What is needed for a commodity to function as money?
Must be easily standardized, easy to choose a value Widely accepted Easily divisible, to make change Easy to carry Not deteriorate quickly
What is unit of account?
It is used to measure the value of an economy
Barter community
N(N-1) /2
Number of prices
What is a store of value?
Repository of purchasing power over time
Why do people keep money?
It is liquid
What is liquidity?
Relative ease and speed with which an asset can be converted into a medium of exchange
What is the most liquid asset?
Money
What is hyperinflation?
When inflation rates exceeds 50% per month
Price levels increase rapidly, money losses value rapidly, people are less likely to hold their money in this form
What is the payment system?
Method of conducting transaction in an economy
What is commodity money?
Precious metal or valuable commodity
Heavy and hard to transport
What is fiat money?
Paper currency decreed by governments as legal tender but not convertible to coins or precious metals
Lighter but must have faith in people issuing it
What are checks?
An instruction to your bank to transfer money for your account to someone else’ account?
What are advantages and disadvantages of checks?
Advantages-reduce transportation costs, written for large amounts, reduce theft
Disadvantages-takes time for money to transfer, cost a lot of money to process
What is electronic payment?
Electronics payment of bills
What is e-money?
Money that exists only in electronic form
Debit cards, stored value card, smart cards, e-cash
What is a stored-value card?
Purchase a card with a prepaid amount up front
What is a smart card?
Computer chip that allows it to be loaded with digital cash from bank account whenever needed
What is e-cash?
Used on Internet to purchase goods or services
What is monetary aggregates?
Measures of the mommy supply agreed on by the fed
What is M1?
Includes most liquid assets
Currency, checking account deposits, and travelers checks
What is included in he currency component?
Only paper money in the nonbank public
What is included in travelers check portion?
Only travelers checks not issued by banks
What is included in the other check able deposits?
Mostly interest bearing checking accounts held by households
What is NOW?
Negotiated order of withdrawl
Pay interest on balances
What is ATS?
Automatic transfer from savings
Pay interest on their balances
What is M2?
Assets that are not quite as liquid
Assets with check writing features
Money market deposit accounts, money market mutual funds
Savings deposits
Small denomination time deposits
Less than 100,000 redeemed at a fixed maturity without penalty
What are saving deposits?
Non-transaction deposits that can be added to or taken out of at anytime
What are money market deposit accounts?
Similar to money market mutual funds, distributed but the bank
What is money market mutual fund?
Retail accounts on which households can write checks
