Economics #2 Flashcards
What are the 2 types of money called?
Commodity money and Fiat money.
What is Commodity money?
They are objects that are useful on their own
Ex: cow can give milk and be used for food and leather.
What is Fiat money?
It has no value of its own, it is only accepted because a government issues it or people are willing to accept it.
Ex: dollars, paper bills, coins, checks, bitcoins.
What are the qualities of effective money?
Must be portable, stable in value, have uniform, universally accepted, divisible, and scarce.
What are things that cannot be money?
Bricks, livestock, shells, etc.
What was included in the history of money?
Bartering, livestock, metal coins, paper currency, gold standard, fiat.
How was livestock used?
Animals provided food, transportation, and raw materials for clothing.
When were metal coins used?
2500 BCE, the egyptians used metal rings as $. 700 BCE, lydians were the first western civilization to make coins.
Why and when did they use paper currency?
It was easy and lightweight and in 618-907 CE, the first known paper money was used in China.
What was the gold standard?
It was currency that must be backed up by a scarce and valuable resource for it to have value and having one type of metal to back up the money to make it more stable, plus gold was adopted by Great Britain in 1819 and by the US in 1900.
What was fiat currency?
In 1971, president nixion anounced that you could not exchange gold for currency. In 1978, the US took US currency of the gold standard, then it became a fiat currency.
What is a nickname for the Federal Reserve? And what do they do?
“Fed”. They regulate banks and help control the supply of $ in the U.S.
What is inflation?
It’s when prices for the same goods and services increas overtime, more and money is needed to buy them.
What are three theories of inflation?
1) if the amount of money grows faster han the amount of goods = scarcity/inflation.
2) if the demands for goods is higher than the supply of goods.
3) if it costs businesses more money to produce goods and services.
Can inflation be good or bad? Explain.
It can be good-
If it is slow and gradual.
The Fed has found that 2% increase in inflation over time helps stabilize the economy and employment levels.
But it can be bad-
If it can cause price to increase faster that wager do.
Is difficult for people to buy goods and services.
Can cause panic.
