Chappter 6: Money & Monetary Policy Flashcards
is anything generally accepted as a means of paying for goods and services and for paying off debts.
Money
True or False
For something to serve successfully as money, it must be easily divisible so that exchanges can take place in small or large quantities, relatively inexpensive to store and transfer, and reasonably stable in value over time.
True
True or False
Money is more convenient than the barter.
True
Goods trade for goods.; Necessary to find someone who not only has what you want, but also wants what you have.
Barter Exchange
True or False
money has become the unit of account in which prices of goods and services are expressed.
True
- Money will always be accepted as payment.
- Money is always on one side of the transaction.
- People with money only need to find someone who has and want to trade what they
want.
Monetary Exhange
whose value comes from the commodity from which it is made.
Commodity money
commodity-backed money.
Representative money
whose value comes from the relationship between supply and demand and the stability of the issuing government.
Fiat money
True or False
What form money takes has varied by region and historical period.
True
Around 1450 in Europe, _______, _______, & ________ coins were used as money.
gold, silver, and copper
the earliest known civilization to use gold coins was the old ____________.
Roman Empire.
True or False
The problem with commodity money is that it restricts the capability of governments to finance wars and other public expenditures.
True
True or False
Gold and silver commodities are just scarce, thus their precious value. This problem led to the invention of the first “representative money”. Rather than paying the armies in gold, the ancient kings and emperors decided to pay soldiers by issuing pieces of paper that were promises to deliver gold on request.
True
Use of paper money began around __________ in Europe when goldsmiths in London issued notes exchanged for gold.
1660
where banks hold only a fraction of their total deposits their reserve deposits in gold coins in that era of gold standard.
fractional reserve banking
are coins with metal contents worth less than the monetary value of the coins.
Token coins
is paper money issued by governments not redeemable in fixed amounts of gold or silver commodities, but has value by government fiat (i.e., the government declares them as legal tender).
Fiat money
The Three Basic Functions of Money
- Serving as a medium of exchange
- A store of value
- A standard of value
True or False
In the barter exchange period, tables of relative values were developed from experience. Such as the number of furs, measures of grain, or amount of cloth agreed to equal one cow.
True
is the amount of goods and services that can be purchased with a unit of money.
Purchasing power
money may be spent immediately after receipt or held over time.
store of value
the need for simpler means of exchange invented money, with its relatively low storage and transfer costs as a _____________-.
medium of exchange
True or False
Money can perform its function as a store of value only if its purchasing power is relatively stable over time.
True
reduces the purchasing power of money, that is the increase of prices of goods and services not off set by increases in quantity or quality.
Inflation
reduce the need for holding money itself as a store of value.
Liquid assets
Money as a ______________ means that prices and contracts for deferred payments are expressed in terms of a monetary unit
standard of value