money and monetary policy part 1 Flashcards
part 1
What is money?
Money is wealth, not a factor of production, and should not be confused with income.
What forms has money taken throughout history?
Money has taken various forms such as cattle, cigarettes, gold, and paper money.
Why is money considered a useful invention?
Money eliminates the double coincidence of wants, which is a feature of the barter system.
What is the double coincidence of wants?
In barter, one must find someone who wants to buy what they want to sell and wants to sell what they want to buy.
What are the functions of money?
The functions of money are: 1) Medium of exchange, 2) Unit of account, 3) Store of value.
How does money function as a medium of exchange?
Money is anything generally accepted as payment for goods and services or in settlement of debt.
Why is money accepted as a means of payment?
People believe that money will be accepted as payment by others.
What is money as a unit of account?
It is a measure for stating prices of goods and services and enables measuring total value in an economy.
What happens to money during inflationary times?
Money loses some of its usefulness as a unit of account.
What is money as a store of value?
Money is a common form of holding wealth and can be exchanged for goods and services later.
What is the relationship between money and wealth?
Money is not wealth; wealth includes fixed property, real estates, shares, etc.
What are the properties necessary for an efficient monetary system?
The properties include uniformity, durability, divisibility, and the ability to be carried.
What led to the development of paper money?
Owners of gold and silver made deposits for safekeeping and received certificates of deposits.
What is fiduciary or credit money?
It is money issued by goldsmiths greater than the value of the gold held in their vaults.
What are legal tender notes and coins?
They are issued by the central bank and cannot be refused if tendered as payment.
What is M1 in the context of money in South Africa?
M1 is defined as cash and demand deposits in circulation outside the monetary sector.
What is M2 in the context of money in South Africa?
M2 is a broader definition of money, including M1 plus short- and medium-term deposits.
What is M3 in the context of money in South Africa?
M3 is the most comprehensive measure of money, including M2 plus long-term deposits.
