Econ Ch 25 Notes

- Economy that does not use money; where goods and services are traded directly for other goods and services - requires double coincidence of wants

Asset that people are generally willing to accept in exchange for goods and services or for payment of debts; most liquid

Anything of value owned by a person or a firm

- A good used as money that also has value independent of its use as money - Meets the criteria for a medium of exchange

1) Medium of Exchange 2) Unit of Account 3) Store of Value 4) Standard of Deferred Payment

Money serves as a medium of exchange when sellers are willing to accept it in exchange for goods or services

In a Barter system, each good has many prices

Money allows value to be stored easily

Money is useful because it can serve as a standard of deferred payment in borrowing and lending

1) The good must be acceptable to most people 2) It should be of standardized quality so that any two units are identical 3) It should be durable so that value is not lost by spoilage 4) It should be valuable relative to its weight so that amounts large enough to be useful in trade can easily be transported 5) The medium of exchange should be divisible because different goods are valued differently

Money, such as paper currency, that is authorized by a central bank or governmental body and that does not have to be exchanged by the central bank for gold or some other commodity money; has little value except as money

- Includes travelers checks, coins, currency, demand deposits, and other checkable accounts; sum of all currency in circulation - Largest proportion is made up of currency - Most liquid measure of the money supply

Includes everything in M1, plus small denomination time deposits (CDs), savings deposits, and money market funds

owned by its member banks; established in 1913 to stop bank panics by acting as a lender of last resort

- Establishes policies for Fed Reserve and member banks to follow, regulate certain operations, and controls money supply - 7 members appointed y President for 14-year terms

The Federal Reserve committee responsible for open market operations and making decisions about growth of money supply

1) Clear Checks 2) Control Money Supply 3) Oversee bank holding companies; corporate structures that own other banks 4) Oversee foreign banks in US and international operations of US member banks/holding companies operating abroad 5) Approve bank mergers 6) Extend truth-in-lending disclosures to individuals who purchase/borrow from corps., retail stores, auto dealers, and lending institutions 7) Lender of last resort 8) Monitor member banks' reserves