Economics Functions of Money

A comprehensive set of flashcards covering key concepts in economics based on the functions of money, its history, demand, and supply.

functions of money

Money serves as a medium of exchange, a store of value, a unit of account, and a standard of deferred payment.

medium of exchange

An item that buyers give to sellers when they purchase goods and services.

store of value

An item that people can use to transfer purchasing power from the present to the future.

unit of account

A standard numerical monetary unit of measure that provides a consistent measure of value.

standard of deferred payment

Money serves as a standard way to pay for future obligations, such as loans.

Barter Economy

A system where goods and services are traded directly without money.

Double Coincidence of Wants

A situation in a barter economy where two parties each hold an item the other wants.

Inflation

A general increase in prices and fall in the purchasing value of money.

Liquidity

The ease with which an asset can be converted into cash.

Wealth

The sum of a person's stores of value, including both money and non-monetary assets.

Aggregate Output

The total amount of goods and services produced in an economy.

Consumer Price Index (CPI)

A measure that examines the weighted average of prices of a basket of consumer goods and services.

Macroeconomics

The field of economics that studies the behavior of overall economies rather than individual markets.

Money Supply

The total amount of money available in an economy at a particular point in time.

M1

A measure of the money supply that includes cash and checking deposits.

M2

Includes M1 and near money, such as savings deposits.

Commodity Money

Money that is made of a material that has intrinsic value, such as gold or silver.

Fiat Money

Currency that a government has declared to be legal tender but is not backed by a physical commodity.

Central Bank

The national bank that provides financial and banking services for its country's government and commercial banking system.

Exchange Rate

The value of one currency for the purpose of conversion to another.

Demand for Money

The desire of households and firms to hold onto cash or liquidity.

Transactions Motive

The need to hold money for everyday expenses.

Precautionary Motive

Holding money for unforeseen emergencies.

Speculative Motive

Storing money to take advantage of investment opportunities.

Open Market Operations (OMO)

The buying and selling of government securities to influence the money supply.

Reserve Requirement

The minimum amount of reserves each bank must hold to customer deposits.

Money Multiplier

The factor by which a change in bank reserves will change the money supply.

Tariffs

Taxes imposed on imported goods to protect domestic industries.

Quotas

Limitations on the amount of a product that can be imported.

Protectionism

Economic policy of restraining trade between nations through tariffs.

Comparative Advantage

The ability of a country to produce a good at a lower opportunity cost than another country.

Absolute Advantage

The ability of a country to produce more of a good than another country using the same resources.

Economic Growth

An increase in the production of goods and services in an economy.

Social Security

Government programs that provide financial support to individuals in need.

GDP (Gross Domestic Product)

The total value of all goods and services produced in a country in a year.

Economic Indicators

Statistics that provide information about the economy's health.

Venezuela Crisis

A significant economic crisis in Venezuela characterized by hyperinflation and currency devaluation.

Banking System

The network of banks and financial institutions that provide financial services.

Government Bonds

Debt securities issued by a government to support government spending.

Financial Markets

Platforms that facilitate the buying and selling of financial instruments.

Investment

The action or process of investing money for profit.

Supply Chain

The entire system of production and distribution of goods and services.

Microeconomics

The branch of economics that studies the behavior of individuals and firms.

Fiscal Policy

The use of government spending and taxation to influence the economy.

Monetary Policy

The process by which the monetary authority of a country controls the money supply.

Natural Resources

Materials found in nature that are used for economic gains.

Labor Force

The total number of people available to work.

Entrepreneurship

The process of starting and running a new business.

Market Economy

An economic system where supply and demand guide economic decisions.

Capital Goods

Goods that are used to produce goods and services.

Consumer Goods

Goods that are purchased for consumption by the average consumer.

Globalization

The process of interaction and integration among people, companies, and governments.

E-commerce

Buying and selling of goods and services via the internet.

Digital Currency

Currency that exists only in digital form, not in physical form.

Cryptocurrency

A digital currency that uses cryptography for security.

Trade Deficit

An economic measure of international trade where a country's imports exceed its exports.

Balance of Trade

The difference in value between a country's imports and exports.

Foreign Direct Investment (FDI)

Investment made by a company or individual in one country in business interests in another country.

Social Entrepreneurship

The practice of applying business principles to social and environmental problems.

Consumer Sovereignty

The theory that consumer preferences determine the production of goods and services.

Market Failure

A situation in which the allocation of goods and services is not efficient.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in price.

Non-Monetary Costs

Costs that do not involve monetary payment but are valuable.

Consumer Behavior

The study of individuals' or groups' choices regarding the purchase of goods and services.

Public Goods

Goods that are non-excludable and non-rivalrous.

Externalities

The positive or negative consequences of economic activities experienced by unrelated third parties.

Trade Liberalization

The removal or reduction of trade barriers to encourage free trade.

Inflation Rate

The percentage increase in the general price level of goods and services.

Government Intervention

The practice of government intervening in the economy.

Business Cycle

The fluctuations in economic activity that an economy experiences over time.

Credit

The ability to borrow money or access goods or services with the understanding that payment will be made later.