Chapter 16 explores the monetary system, defining money as an asset that facilitates trade, measures value, and stores wealth. It functions as a medium of exchange, unit of account, and store of value, with types including commodity money (e.g., gold), fiat money (e.g., U.S. dollar), and cryptocurr...
● Definition:
○ Money is an asset that can be used to facilitate trade (purchase
goods/services) and measure the value of resources.
● Functions:
○ Medium of Exchange
■ Globally accepted as a medium of exchange for goods & services.
○ Unit of Account
■ Standard unit of measurement of worth, which allows people to
make comparisons between items.
○ Store of Value
■ Transfer purchasing power from the present to the future—the
maintenance of wealth.
TYPES OF MONEY
● Commodity Money
○ Money in the form of a commodity with intrinsic value
○ This means that commodity money would still have value even if it were
not used as money
○ E.g. Gold, which was formerly used as a medium of exchange
● Fiat Money
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, ○ This is money that has no intrinsic value
○ Fiat money is established as money by government decree
○ E.g. the U.S. dollar bill vs. a Monopoly dollar bill. They both have the same
intrinsic value but only one is established a real medium of exchange
● Cryptocurrency
○ This is a type of money that is neither commodity money nor fiat money,
as it is completely virtual and has not established value via government
decree
○ Cryptocurrencies like bitcoin are often used in illegal trade as they are not
monitored by the government and are just accepted by anyone who is
willing to accept it
MONEY IN THE U.S. ECONOMY
● Money Stock
○ This refers to the quantity of money circulating in the economy.
○ It has a strong influence on several economic variables.
● Measuring Money Stock
○ Currency:
■ The most widely accepted medium of exchange– paper bills and
coins in public hands.
○ Demand Deposits:
■ The second most popular form of money– money stored in
checking accounts that can be spent/withdrawn immediately.
LIQUIDITY
● Definition:
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