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money
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 purchase goods and services
unit of account
measure people use to post prices and record debts
store of value
item that people can use to transfer purchasing power from the present to the future
Liquidity
money without intrinsic value that is used as money by government decree ( what we use around the globe )
role of central banks
institution designed to regulate the quantity of money in the economy
Functions: low inflation, avoid large fluctuations, stable economic growth
Monetary policy
set of actions taken by the central bank to affect the money supply
how banks create money
Reserves (deposits that banks have received but have not loaned out) Fractional reserve banking ( system holds fraction of deposits as cash )
Money growth and inflation
positive relationship between money growth and inflation. As the quantity of money in the economy grows, the price level will also grow. ( more money inflates prices)
Equilibrium price level
Equilibrium price lvl ( increase in Supply )
Equilibrium price lvl ( increase in demand )
