Chapter 11 Flashcards
Money
Anything that is generally accepted in exchanging goods and services.
Barter system
Direct exchange of one good for another, it collapsed due to high transaction cost
Double coincidence of wants
it takes a long time to find someone who has what you want and who wants what you have
Medium of Exchange
Facilitate exchange of goods and services
Unit of account
Used to measure values
Store of Value
Store purchasing power for future use, is not a good store of value because it loses value due to inflation
Mean of deferred payments
used to pay for debts.
Gold Standard
In the past money was backed by a reserve of gold. Central banks must keep a reserve of gold equal to the paper notes they issue and any one can convert paper notes into gold.
New Legal Tender
Nowadays money is no longer backed by gold it becomes legal tender “fiat money” guaranteed by the government that it will be accepted for payments.
Measuring money supply (M2)
Currency + Demand and saving deposit in charted banks (commercial accept deposits and give loans)
Currency
coins and paper notes in circluation
Demand Desposits
Checking accounts access money on demand whenever you want, you can write cheques on it.
Saving deposits
cannot be used directly to make payments. They earn higher interest early withdrawals are penalized. Cannot write cheques on them.
M2+
M2 + Deposits at other financial institutions “noncharted banks” = (M2+)
Types of Noncharted Banks (+) from M2+
- Trust Companies : Accept deposits and invest for you
- Mortgage and Loan Companies
- Credit Union : group of people who borrow and lend from each other
- Caisse Populaives : credit unions in Quebec.
