Download - Chapter 12 Money and Banking
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Anything that commonly accepted as a payment for goods and services
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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)
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1. Medium of Exchange
2. Unit of Account
3. Store of Value
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Any item sellers generally accept and buyers generally use to pay for a good or service
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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
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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
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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
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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)
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M1 + savings deposits + small time deposits (less than $100,000 with a fixed maturity date ex CDs) + Eurodollar deposits (overnight deposits)
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M2 + large time deposits + Eurodollar time deposits + other less liquid assets
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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
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Roughly $13.9 trillion in US currency circulating throughout the world
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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