Notesale: Turn your study into money

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Monetary Economics – Seminar 1 Statements

Financial markets promote economic efficiency by channeling funds from savers to investors
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By definition, a commodity money is any commodity that is generally accepted in payment for goods and
services and for the repayment of debts
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{Use equation 𝟏 𝟐n(n-1)}


When a person withdraws from a U
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S
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S
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Currency includes paper money and coins
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In economies with at least 4 types of goods, Advantages of a monetary payment system (MPS) relative to a
barter payment system (BPS) include: an MPS requires fewer prices to conduct trades
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M1 is the narrowest of the three aggregate money measures M1, M2 and M3, in the sense that it consists
of financial instruments that most closely satisfy the theoretical definition of money
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If, however, there are ten goods in a barter economy, then one needs to know 45 prices in
order to exchange one good for another
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A hyperinflation is a period of extreme inflation generally greater than 50% per month
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The evolution of the payments system from barter to precious metals, then to fiat money, then to checks
can best be understood as a consequence of innovations that reduced the costs of exchanging goods and
services
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The following sequence accurately describes the evolution of the payments system: barter, coins made of
precious metals, paper currency, checks, electronic funds transfers
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A narrow
aggregate of money is just a medium of exchange, a broader aggregate of money has other functions (e
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store of value)
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How is it possible for
cigarettes to solve the “double coincidence of wants” problem, even if a prisoner does not smoke?
Even if he or she is a non-smoker, since the prisoner knows that others in the prison will accept cigarettes
as a form of payment, they themselves would be willing to accept cigarettes as a form of payment
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Most of the time it is quite difficult to separate the three functions of money
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For each of the following situations,
identify which function of money is emphasized:
a) Brooke accepts money in exchange for performing her daily tasks at her office, since she knows she
can use that money to buy goods and services
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c) Maria is currently pregnant
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(a) This situation illustrates the medium-of-exchange function of money
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The
medium-of-exchange function of money refers to its ability to facilitate trades (hours worked for money
and then money for groceries) in a society
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If modern societies did not use
money as a unit of account, then the price of apples would have to be quoted in terms of all the other
items in the market
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Suppose that a pound of apples sells for 0
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5 pound of
potatoes
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As a medium of exchange and unit of
account, measures of money known as M1 or M2 have no important rivals
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Maria’s choice to preserve the purchasing power of her income by increasing her savings account balance
is fine for a small period of time
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S
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