Econ 3229 Chapter 3

The M2 measure of money includes...

*M1* + -savings deposits -"small" time deposits -money market mutual funds

Different payment systems

-Commodity money -Fiat money -Checks -Electronic Payment -Debit Cards -Mobile Pay

The M1 measure of money includes...

-Currency -Checking account deposits -Traveler's checks

3 functions of money

1. Medium of exchange 2. Store of Value -not a good store of value but liquid 3. Unit of account -express value of things by money

Three Functions of Money

1. Medium of exchange-store of value 2. Unit of account 3. Store of Value (probably not a good way)

Q: Currency includes: A) paper money and coins. B) paper money, coins, and checks. C) paper money and checks. D) paper money, coins, checks, and savings deposits.

A: A) Paper money & coins

Q: Of the following assets, the least liquid is A) stocks. B) traveler's checks. C) checking deposits. D) a house.

A: D) A house *Most liquid is stocks

Q: If an individual moves money from a small-denomination time in M2 deposit to a checking deposit account in M1, what happens to M1 & M2?

A: M1 increases and M2 stays the same

Q: Dennis notices that jackets are on sale for $99. In this case money is functioning as a

A: Medium of Exchange

Q: ________ is used to make purchases while ________ is the total collection of assets that serve to store value.

A: Money, Wealth

Q: ________ are the time and resources spent trying to exchange goods and services.

A: Transaction Costs

Commodity Money

Gold coins; has intrinsic value by itself

Fiat Money

Has value by decree of government so by itself it is worthless

Hyperinflation

Money loses value *In countries where there is hyperinflation the people would rather be paid by goods or services which is in return very inefficient for the country

Currency

Paper money & coins

Checks

Payment system, instruction to bank to give to someone

Wealth

Total collection of pieces of assets such as bonds, stock, land, and houses , etc

Bargaining Costs

They want your stuff & you want theirs

Money

anything that's accepted for payment for goods & debts

Bond may ______ or ________ in value

appreciate; depreciate

One Yr holding period rate of return

coupon/initial price + change in price/initial price

A society without money and transaction costs creates _______ ________ of _________

double, coincidence, wants

Risk is __________ the longer the __________ of the bond

greater; maturity

If you buy bond from government you are the ______ and they are the ________

lender; borrower

interest rate risk

price of financial asset will fluctuate in response to changing market interest rates

Actual (ex post) real interest rate is easy to compute

r=i-pi^e

YTM measures...

your return from buying a particular bond given that you had till it matures