Key Terms
Medium of Exchange
Widely accepted as payment. Solves the core problem of barter.
Store of Value
Holds economic value over time so you can spend it later. Doesn't have to be perfect; even money that loses value slowly
Unit of Account
The common ruler for measuring economic value. Without it, every price would have to be expressed in terms of every othe
Standard of Deferred Payment
Acceptable for future obligations. Loans and contracts depend on this function.
Barter
Direct trading of goods/services without money
Second problem
Barter can't easily handle future contracts. You can't promise someone a perishable good six months from now.
Commodity Money
Item used as money that also has independent use-value
Commodity-Backed Currency
Paper money with value backed by a stored commodity (usually gold or silver). U.S.
Fiat Money
Government-declared legal tender with no intrinsic value; backed only by trust
Liquidity
Speed and ease of converting an asset into a purchase
Table
M1 vs M2 Components
Debit Card
Instruction to immediately transfer money from your checking account to the seller. The checking account is money; the c
Credit Card
Short-term loan from the credit card company to you. NOT money.
Smart Card
Stores a set dollar value; used to make purchases. Counts as money for the stored amount.
SECURITIES
All financial assets. Two main types: