Unit 4: Financial Assets, Money, Monetary Policy

financial assets

financial claims arising from contractual relationships in which one institutional unit provides funds to another

money

any commonly recognized item used to exchange goods and services within an economy

money criteria

portability, durability, divisibility, fungibility

medium of exchange

money function, posits that without money, we would have to barter for everything

double coincidence of wants

the person who owns the goods or services you want has a desire for what you have to barter with

store of value

money function, posits that if goods/services you produce are perishable, you will benefit from a nonperishable item that will hold the value of past production into the future; key characteristic distinguishing money from currency

unit of account

money function, posits that money provides a standard unit for price listings and comparisons

currency

an item that is used as money but does NOT act as a store of value or carry intrinsic value

commodity money

any raw material with intrinsic value that is used in exchange for other goods in the economy, ex silver coin

fiat money

currency without intrinsic value, ex paper cash

wealth

the value of the total assets owned by an individual or entity, sum of one’s assets minus any debts

monetary policy

the way in which the Fed uses its tools to influence interest rates, inflation, exchange rates, etc. (control of expansion and contraction)

expansionary

monetary policy where an increase in money supply ultimately leads to an increase in real interest rates

contractionary

monetary policy where a decrease in money supply ultimately leads to a decrease in real interest rates