What is money? What is not money? Flashcards
A $10 bill
Fiat Money
Gold in the 19th Century
Commodity Money
Gold today
A financial asset that is not money
A nickel and penny
Fiat Money
In N Out French Fries
None of the above
Postage Stamps
None of the above
Traveler’s Checks
Bank Money
“Soups” in the Santa Cruz County Jail
Commodity Money
Deposit in a bank savings account
A financial asset that’s not money
A blank check
None of the above
Salt, at times in the past
Commodity Money
Historically, cacao nibs in Mexico
Commodity Money
A 6 month CD account
A financial asset that’s not money
Shares of stock of IBM
A financial asset that’s not money
Deposits in a checking account
Bank Money
Whiteboard markers
None of the above
What is money?
Money is a financial asset (and thus acts as a store of value) that people use to purchase goods and services (medium of exchange)
What does M1 money mean?
That only currency (paper bills and coins) and checkable deposits in banks (which includes travelers checks) shall be considered money.
Money has three functions in the economy. What are the?
Money is a medium of exchange, a unit of account and a store value.
Medium of exchange
an item that buyers give to sellers when they want to purchase goods and services. This is one of the three functions of money.
Ex: When you buy a shirt a shirt at a clothing store, the store gives you the shirt and you give the store money.
Unit of Account
The yardstick (measurement) people use to post prices and record debts. This is also one of the three functions of money.
Store of Value
an item that people can use to transfer purchasing power from the present to the future. This is also one of the three funtions of money.
Ex: When a seller accepts money today in exchange for a good or service, that seller can hold the money and become a buyer of another good or service at another time
Liquidity
The ease with which an asset can be converted into the economy’s medium of exchange.
Wealth
A term that is used to refer to the total of all stores of value, including both money and non-monetary assets
When money takes the form of a commodity with intrinsic value, it is called
Commodity money
Ex: In prisioner war camps during WWII, prisioners traded goods and services with one another using cigarettes as the store of value, untit of account and medium of exchange. Even non smokers were happy to accept the cigarettes in an exchange, knowing that they could use the cigarette to buy other goods and services.
What does it mean if an economy is operating under a “gold standard?”
It means the economy uses gold as money (or paper money that is convertible into gold on demand).
Fiat Money
Money without intrinsic value that is used as money because of government decree
Define currency
The paper bills and coins in the hands of the public.
True or False? Currency is the most widley accepted medium of exchange in our economy.
True
Balances in bank accounts that depositors can access on demand by writing a check.
Demand deposits
What three things happen if there is a surplus of money?
- People splurge, trying to spend their excess money.
- Prices rise from the splurging, more than normal spending
- Prices rising means the value of money is falling
What three things happen if there is a shortage of money?
- People hoard their money, trying to acquire their shortfall.
- Prices fall from the hoarding, people spending less than normal
- Prices falling means the value of money is rising.
an item that buyers give to sellers when they want to purchase goods and services. This is one of the three functions of money.
Medium of exchange
an item that people can use to transfer purchasing power from the present to the future. This is also one of the three funtions of money.
Ex: When a seller accepts money today in exchange for a good or service, that seller can hold the money and become a buyer of another good or service at another time
Store Value
The yardstick (measurement) people use to post prices and record debts. This is also one of the three functions of money.
Unit of Account
