Money and Inflation
Feedback and Test 3
- Feedback is valued; a code will be provided to log on and answer questions about paper preferences.
- 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.