Functions and Characteristics of Money (Take 1)

Which is more liquid: the money in your checking account or the money in a certificate of deposit?

checking account

Unit of Account

Ability to compare value of different goods and services

Fiat Money

Money that has no intrinsic value; paper money

Commodity Money

a good used as money that also has value independent of its use as money. eg, grain

Legal Tender

Government stipulates that you must accept the good to settle all debts

What is in M0 (M-Zero")?

Cash; coins; and money on deposit with the Fed

Monetary Base

Another word for M0 (M-Zero)

M1

Cash and coins plus demand deposits plus traveler's checks

M2

M1 plus time deposits (longer term deposits)

What makes up the majority of our money?

demand deposits

Purchasing Power of Money

how much you can buy with your money

Inflation

A general increase in the average price level

Deflation

A general decrease in the average price level

Dollar bills are an example of

Fiat Money

Bank note

cash AKA paper money

Which has a bigger dollar value: M1 or M2?

M2. Because M2 includes M1 and "near moneys."

I have a fully functional left airpod pro that I will trade for a right airpod gen 1. This is a great deal because you get the better product. I've been trying to do a trade for 2 years. Yet no student will trade with me. What is the problem?

The double coincidence of wants.

Liquidity

The ease with which an asset can be converted into cash

Which is more liquid: my car or my house?

my car

True or False: The bank notes in your wallet are part of M2?

True. Cash is part of M1. All of M1 is contained in M2.

"Money transfers buying power into the future." Which of the 3 functions are we talking about?

Store of value

Transaction costs

the costs (principally the TIME) incurred for buyers and sellers to strike a deal.

Money reduces transaction costs because...

Lots of reasons. One is that it eliminates the double coincidence of wants.

Money (defined)

Anything that is generally accepted in exchange for goods and services

Medium of Exchange

This is the function where money is the intermediate between two goods

Store of Value

Ability to save wealth in terms of money

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