ECO 4223 Luther Exam 1
Money - ANS-commonly accepted medium of exchange
·Common functions of money - ANS-o Medium of exchange (necessary, but not sufficient)
o Store of value (necessary, but trivial)
o Unit of account (unnecessary)
Inside Money - ANS-(bank money) created within banking system and is a claim to some other
asset that is used to make payments.
Inside Money Example - ANS-Checking account, bank owes you that money and you can use a
debit card to make a payment.
Outside Money - ANS-(base money) created outside banking system and is money used for
final settlement because it's not redeemable.
Outside Money Example - ANS-$100 bill (cash is not redeemable)
Commodity Money - ANS-is a good that is used as money. Historical examples include gold,
silver and salt.
Fiat Money - ANS-is an item that has no use apart from being a commonly accepted medium of
exchange. Modern examples the dollar and euros.
Why Do We Use Money? (2 views) - ANS-1) Historical Materialist View
2) Economic View
Historical Materialist View - ANS-(Anthropologist favor) money is a revenue-raising technology
introduced by governments to collect taxes more effectively.
Economic View - ANS-(Economists favor) money is a productive technology that reduces
transaction costs hence, facilitates exchange.
State Theory of Money - ANS-or chartalism, maintains that money was created by the
government.
Tools governments use to determine medium of exchange (4) - ANS-o Public receivability
o Legal tender status
o Forced money laws
o Ban alternatives
, Public Receivability - ANS-the government commits to accepting taxes and making purchases
with it.
Legal tender status - ANS-courts are required to recognize the item as satisfactory payment of
any debt, and settle disputes by requiring payment in the item.
Forced money laws - ANS-the government punishes those refusing to accept its preferred
money.
Ban alternatives - ANS-the government punishes those using some alternative money.
Epistemic Problem of State Theory of Money - ANS-you have to accept someone recognized
the potential for money- before money had ever existed
Spontaneous Order Theory of Money - ANS-describes a situation where the outcomes is not the
intention of the relevant decision makers. The outcome-money-is a product of human action, but
not design.
Characteristics of a good money (6) - ANS-o Saleable (widely accepted)
o Durable
o Portable
o Divisible
o Uniform
o Limited, predictable supply
Common measures of the price level (3) - ANS-o Consumer Price Index
o Personal Consumption Expenditures Price Index
o GDP Deflator
Consumer Price Index - ANS-designed to measure the prices consumers face when spending
their discretionary income.
Problems with CPI - ANS-survey based and ignores substitution
Personal Consumption Expenditures Price Index *Fed's preferred measure? - ANS-designed to
measure ALL the prices consumers face.
actual expenditures are used to determine the basket.
GDP Deflator - ANS-designed to measure the prices of all final goods and services produced in
the country.
Inflation - ANS-denotes an increase in the average level of prices (positive growth rate)
Deflation - ANS-denotes a decrease in the average level of prices (negative growth rate)
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller AnswersCOM. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.99. You're not tied to anything after your purchase.