Week 1 Flashcards
Least restrictive definition of money
Any goof that is intended for use in exchange
Double Coincidence of Wants
The double coincidence of wants occurs in successful barter or direct exchanges
The preferences of both parties align and demand each others’ goods. Exchange is able to take place.
Media of Exchange
Goods that are used/valued for the ability to facilitate exchange
Commonly Accepted Medium of Exchange (CAMOE)
-Once a medium of exchange is widely accepted and used, it achieves CAMOE status.
-Typically only one of these. Menger predicts that the money with the best “saleability” will win the contest.
-Historically there can be a few in use at once, especially before coinage.
-Exhibits high fungibility, universal acceptance, strong definition
Medium of Account
Defines the properties of money. A unit of measure for value. Translatable across goods. Serves as an anchor that enables the value of other goods to be clearly and consistently expressed in terms of the monetary unit
Fundamental to the proper functioning of the price system
Ideal properties of money
durable, portable, divisible, uniform, stable value
Role of Government in Money Provision
Menger: Although government doesn’t decide what is/becomes money, it can play a role in supporting it.
Chartalism: Money is determined solely by state edict
Demand for money is driven by the state denominating tax requirements in the state’s preferred money.
Seigniorage
Reduce weight or fineness of coins. Declare through edict that the nominal value of the new debases coins = the value of the old full-weighted coins
Gresham’s Law
“Bad money drives out the good”
Seigniorage Arithmetic
S = M - (PQ + C)
where
S = nominal seigniorage
M = nominal value assigned to coins
P = price paid per ounce of precious metal at mint
Q = quantity of precious metal in coins
C = miniting costs (brassage)
