Trade of one good for another without the use of money.
Double Coincidence of Wants
Makes barter difficult because both parties to a trade must be accepting of items offered in trade.
Anything generally accepted in exchange for goods and services that acts as a medium of exhange, a measure of value, and a store of value.
Desirable Characteristics of Money
Durable, portable, divisible, recognizable, stable, and identical (homogenous.)
Functions of Money
Medium of exhange, a measure of value, and a store of value.
Medium of Exchange
Generally accepted as a means of payment - pays for goods and services. Using money to buy your groceries.
Measure of Value
A tool by which to measure the "worth" of an item. A 2-karat "diamond" costing $275 is probably not a "real" diamond.
Store of Value
A way to hold wealth for the future. Saving your money for use at a later date.
"Bad money drives out good money." As money of different quality circulates, people tend to trade away inferior quality money and keep superior quality money.
Exchangeable for full value in gold or silver.
Fractional Reserve Money
Money that is only partially backed by gold or silver.
Money that is deemed legal or tender by the government, and it is not based on or convertible into a commodity.
Declared by law for the retirement of all debt, either public or private.
Value of Money
Value of money is reflected in its purchasing power.
Coins and paper money.
Federal Reserve Notes
Paper money used in the United States that is issued by the Federal Reserve System.
The degree to which an assest is easliy converted into or exhanged for money.
The supply of M1 - currency, checking account funds, and traveler's checks. These items are counted as money because they are used as the means of payment for purchases.
Most immediate form of money which includes currency, demand deposits, and traveler's checks.
All of M1 + less immediate (liquid) forms of money to include savings, money market mutual funds, and small denomination time deposits.
All of M1 + M2 + large denomination time deposits and large-denomination repurchase agreements.
Another name for checkable accounts.
U S Savings Bonds and Corporate Bonds are financial assets or near monies.
Instruments of debt - credit cards are NOT money.
Velocity of Money
The average number of times a dollar is used to purchase final goods and services during a year. It is equal to GDP divided by the stock of money.
Equation of Exchange
MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of output of goods and services produced in an economy.
Quantity Theory of Money
P = MV/Q A theory that hypothesizes that a change in the money supply will cause a proportional change in the price level because velocity and real output are unaffected by the quantity of money.
Transactions Demand for Money
The amount of money demanded by houses and businesses to conduct their transactions - the buying and selling of goods and services.