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Test 3 will be on Thursday at 6 PM, covering Topic 9 and Topics 7 and 8.
Introduction to Money
The lecture will cover the topic of money and inflation.
The goal is to potentially change students' perceptions about money.
What is Money?
Money is defined as any set of assets that people regularly use to purchase goods and services.
Barter System
Before money, people used the barter system, which requires a double coincidence of wants, where both parties must want what the other possesses.
Barter is inefficient due to search costs involved in finding someone with matching wants.
Functions of Money
Medium of Exchange: An asset used to facilitate transactions.
Unit of Account: A standard unit for measuring value (e.g., the New Zealand dollar).
Store of Value: An asset that maintains its value over time.
Types of Money
Commodity Money
Has intrinsic value and can be used for other purposes (e.g., gold).
Fiat Money
Declared legal tender by a central authority and has no intrinsic value (e.g., banknotes).
Commodity Money Examples
Examples include Roman gold coins, sugar, silver bracelets, salt, shells, and large stones.
A cabbage was given as a negative example, due to not being a reliable store of value because it rots quickly.
Cryptocurrencies
Cryptocurrencies have a decentralized and hidden ownership.
They are still not credible stores of value due to volatility.
Characteristics of Money
Fungible: Easily broken down into smaller parts.
Non-Consumable: Does not get used up.
Portable: Easy to carry.
Durable: Long-lasting.
Decentralized: Not controlled by a central authority.
Money Supply
Economists consider currency and demand deposits in banks as money in an economy.
Most money is held in financial intermediaries, with currency usage declining but still important for situations like blocked accounts or cash transactions.