money

Question 1

functions of money (3)

Answer 1

1. medium of exchange
2. store of value
3. unit of account

Question 2

a medium of exchange

Answer 2

exchanging 2 items is hard, accepting a common currency is easier

Question 3

store of value

Answer 3

converting perishable goods to durable goods this allows saving for the future

Question 4

unit of account

Answer 4

standard relationship between various goods in an economy.

Question 5

intrinsic value

Answer 5

market value of currency’s constituent material when used for non-monetary purposes.

Question 6

extrinsic value

Answer 6

official value doesn’t change. 1 is always 1

Question 7

fiat money

Answer 7

low intrinsic value, high exchange value

Question 8

exchange value

Answer 8

what you can buy with it

Question 9

commodity money

Answer 9

high intrinsic value, high exchange value

Question 10

inflation

Answer 10

increase in the general price level

Question 11

zero inflation

Answer 11

constant price level from year to year

Question 12

deflation

Answer 12

a decrease in the general price level

Question 13

disinflation

Answer 13

a decrease in the rate of inflation

Question 14

what’s wrong with inflation?

Answer 14

• for people who are on a fixed nominal income, it means lower real income
• introduces uncertainty
• menu costs
• discourages investment

Question 15

what’s wrong with deflation?

Answer 15

when prices are falling, we postpone consumption thinking it’s gonna be cheaper in the future
increases real debt burden

Question 16

where does inflation come from? (3)

Answer 16

1. money supply
2. demand pull
3. cost push (supply)

Question 17

money supply

Answer 17

printing money, more money chasing same goods

Question 18

demand pull inflation

Answer 18

aggregate demand > aggregate supply (after covid overconsumption)

Question 19

cost push (supply side)

Answer 19

supply is less - cutting off energy supplies, decreasing raw materials

Question 20

what do central bank’s do?

Answer 20

they target price stability by changing interest rates and money supply.

Question 21

higher interest rate means…

Answer 21

lower spending today

Question 22

lower interest rate means…

Answer 22

more spending today

Question 23

phillips curve

Answer 23

if you want to have low unemployment, there should be inflation (assumes that tradeoff exists between inflation and unemployment)