chapter 12 money and banking
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Chapter 12 Money and Banking. Money. Anything that commonly accepted as a payment for goods and services. Types of Money. 1. Commodity Money- has value beyond its use as money (ie precious metals, cigarettes in prison) - PowerPoint PPT PresentationTRANSCRIPT
Anything that commonly accepted as a payment for goods and services
1. Commodity Money- has value beyond its use as money (ie precious metals, cigarettes in prison)
2. Fiat Money- no intrinsic value… Has value only because the government says so (Cash is worthless in and of itself, or Justin Bieber)
1. Medium of Exchange
2. Unit of Account
3. Store of Value
Any item sellers generally accept and buyers generally use to pay for a good or service
Standard unit in which prices can be stated and the value of goods/services can be compared
Society uses monetary unitsU.S. dollars, Euros, Yen, etc.
Yardstick for measuring worth of goods and services
Asset set aside for future useEnables people to transfer
purchasing power from now to the futureWhen inflation is low or non
existent; risk-free storage of wealth
Assets that are quickly converted to cash
The more liquid an investment, the faster you can turn it into cash
Liquid = cash, checks, savings accounts
Non-liquid = 401k, IRAs, Real Estate
M1- Narrowest Definition of moneyM1 = coins and paper money +
checkable deposits + traveler’s checks
Includes all Checkable Deposits (accounts that checks can be drawn from)
M1 + savings deposits + small time deposits (less than $100,000 with a fixed maturity date ex CDs) + Eurodollar deposits (overnight deposits)
M2 + large time deposits + Eurodollar time deposits + other less liquid assets
Commercial Banks- provide short-term financial capital to businesses and finance consumer purchases of automobiles and other durable goods
Thrift Institutions- Savings and Loans (S&Ls), mutual savings banks, and credit unionsMostly use these funds to finance mortgages
Roughly $13.9 trillion in US currency circulating throughout the world
Divide 1 by the price level expressed as an index number (in hundreths)
Ex. Price index is 120 (1.20)
V = 1/1.2V= .833