Money and the Financial System Flashcards
Double Confidence of Wants
Two traders are willing to exchange their products dirtectly
money
anything excepted as exchange for goods and services
medium of exchange
anything that facilitates trade by being generally excepted by all parties in payment for goods and services
commodity money
anything that serves both as a money and as a commodity (something that already has value) AKA gold and silver coins
Unit of Account
a common unit for measuring the value of each good or service
Store of Value
Anything that retains its purchasing power over time.
Gresham’s Law
People tend to trade away inferior money and hoard the best
Six properties of ideal money
Durable Portable Divisible Uniform Quality Low Opportunity Cost (Production) Stable Value
Seigniorage
The difference between the face value of money and the cost of supplying it. (the “profit” of money)
Token Money
Money whose face value exceeds its cost of production
Fractional Reserve Banking System
Bank reserves amount to only a fraction of funds on deposit with the bank
Representative money
Bank notes that exchange for a specific commodity, such as gold
Fiat money
money not redeemable for any commodity. AKA the dollar now
Financial intermediaries
banks, mortgage companies, finance companies that serve as middlemen for borrowing and saving.
depository institutions
institutions where you can deposit dollas
