Chapter 16: The Monetary System

Vocabulary flashcards covering the fundamental concepts of the monetary system, including functions of money, types of money, and measures of the money supply as presented in the lecture notes.

Barter

The exchange of one good or service for another.

Double coincidence of wants

A requirement for barter where two individuals each have an item the other person wants.

Money

The set of assets in an economy that people regularly use to buy goods and services from other people.

Medium of exchange

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

Unit of account

The yardstick people use to post prices and record debts, used to measure and record economic value.

Store of value

An item that people can use to transfer purchasing power from the present to the future, such as saving $100$ today to spend later.

Liquidity

The ease with which an asset can be converted into the economy’s medium of exchange.

Commodity money

Money that takes the form of a commodity with intrinsic value, such as gold.

Intrinsic value

The quality of an item that means it would have value even if it were not used as money.

Fiat money

Money without intrinsic value that is used as money by government decree, such as U.S. dollar bills.

Currency

The paper bills and coins in the hands of the public; it is the most widely accepted medium of exchange in the economy.

Demand deposits

Balances in bank accounts that depositors can access on demand by writing a check or swiping a debit card.

M1

A measure of the money stock that includes currency, demand deposits, traveler's checks, and other checkable deposits, totaling approximately $3,737 ext{ billion}$ in January 2019.

M2

A measure of the money stock that includes everything in M1, plus savings deposits, small time deposits, money market mutual funds, and a few minor categories, totaling approximately $14,467 ext{ billion}$ in January 2019.