Principles of Economics 9 - The Monetary System* Flashcards
What’s bartering and what’s the problem with it as a way to exchange goods?
Bartering is the exchange of one good for another. It requires a double coincidence of wants
What’s the meaning of money?
Money is the set of assets in an economy that people regularly use to buy goods and services from other people
What’s the function of money?
Money has three functions in the economy:
1) Medium of exchange
2) Unit of account
3) Store of value
What does ‘medium of exhange’ mean?
A medium of exchange is an item that buyers give to sellers when they want to purchase goods and services; anything that is readily acceptable as payment
What’s ‘unit of account’?
A unit of account is the yardstick people use to post prices and record debts
What’s the name for ‘an item that buyers give to sellers when they want to purchase goods and services; anything that is readily acceptable as payment’?
Medium of Exchange
What’s the name for ‘the yardstick people use to post prices and record debts’?
Unit of Account
What’s a ‘store of value’?
An item that people can use to transfer
purchasing power from the present to the future
What’s the name for ‘an item that people can use to transfer purchasing power from the present to the future’?
Store of Value
What’s ‘liquidity’?
The ease with which an asset can be
converted into the economy’s medium of exchange
What’s the name for ‘the ease with which an asset can be converted into the economy’s medium of exchange’?
Liquidity
What’s the most liquid asset available?
Money
Describe how liquidity and store of value play a part when someone decides how to hold their wealth
When people decide in what forms to hold their wealth, they
have to balance the liquidity of each possible asset against
the asset’s usefulness as a store of value.
