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Unit 4 (money (function (substitutes (barter system (double coincidence of…

- - - - barter system
        
        double coincidence of wants
    - - can be used to acquire products and services directly
    - - acts as a measurement of value
    - - allows you to store purchasing power for the future
  - - - something that both perform the function of money and has intrinsic value
      - examples
        
        gold, silver, cigarettes
    - - used as money but lack intrinsic value
- - - - everything tangible or intangible that is owned
    - - anything that is owned
    - - an agreement between a lender and a borrower
    - - nominal interest rate
        
        nominal=real + expected inflation
      - real interest rate
        
        real=nominal - expected inflation
    - - the ease with which an asset can be accessed and used as a medium of exchange
      - classification
        
        M1
        
        M2
    - - loans that represent debt that the gov. business or individual are obligated to repay
      - dosent give ownership to the bond holder
    - - represent ownership of a corporation, entitled to a portion of the profit
- - - - percent required by law
    - - amount that the bank can loan out
- - - - reasons
        
        transaction demand
        
        people hold money for everyday transactions
        
        asset demand
        
        people hold money since it is less risky than other assets
      - shifters
        
        change in price level
        
        change in income
      - slope
        
        negative
    - - slope
        
        vertical
      - shifters
        
        change in money supply by the FED
        
        mechanics/levers
        
        changing the reserve requirement
        
        concept
        
        money multiplier
        
        1 more item...
        
        increase res. req. -> decrease money supply
        
        changing the discount rate
        
        the interest rate that the FED charges commercial banks
        
        open market operations
        
        the FED buys or sells government bonds
        
        buys
        
        1 more item...
        
        sells
        
        1 more item...
        
        concept
        
        federal funds rate
        
        types
        
        expanditory
        
        contractionary
        
        decrease money supply -> shift of MS to the left -> higher interest rate -> decreased investment, decreased consumer spending -> decreased BNP
    - - x-axis
        
        quantity of money
      - y-axis
        
        intrest rate
  - - - downward sloping
      - shifters
        
        changes in perceived business opportunities
        
        change in government borrowing/spending
    - - upward sloping
      - shifters
        
        change in private savings behavior
        
        change in public savings
        
        changes in foreign investment
    - - x
        
        quantity of demand
      - y
        
        real interest rate