| Term | Definition |
|---|
| Barter | 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. |
| Money | 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. |
| Gresham's Law | "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. |
| Fiduciary Money | Exchangeable for full value in gold or silver. |
| Fractional Reserve Money | Money that is only partially backed by gold or silver. |
| Fiat Money | Money that is deemed legal or tender by the government, and it is not based on or convertible into a commodity. |
| Legal Tender | 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. |
| Currency | Coins and paper money. |
| Federal Reserve Notes | Paper money used in the United States that is issued by the Federal Reserve System. |
| Liquidity | The degree to which an assest is easliy converted into or exhanged for money. |
| Money Supply | 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. |
| M1 | Most immediate form of money which includes currency, demand deposits, and traveler's checks. |
| M2 | All of M1 + less immediate (liquid) forms of money to include savings, money market mutual funds, and small denomination time deposits. |
| M3 | All of M1 + M2 + large denomination time deposits and large-denomination repurchase agreements. |
| Demand Deposits | Another name for checkable accounts. |
| Near Money | U S Savings Bonds and Corporate Bonds are financial assets or near monies. |
| Credit Cards | 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. |
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