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10
The Money Supply and the
Federal Reserve System
An Overview of Money
Money is anything that is generally
accepted as a medium of exchange.
Money is not income, and money is
not wealth. Money is:
a means of payment,
a store of value, and
a unit of account.
An Overview of Money
Money as a means of payment, or medium
of exchange, is more efficient than barter.
Barter is the direct exchange of goods and
services for other goods and services.
A barter system requires a double
coincidence of wants for trade to take
place. Money eliminates this problem.
Money is a lubricant in the functioning of a
market economy.
2002 Prentice Hall Business Publishing
An Overview of Money
Money as a store of value refers to money as
an asset that can be used to transport
purchasing power from one time period to
another.
Money is easily portable, and easily exchanged
for goods at all times. The liquidity property
of money makes money a good medium of
exchange as well as a store of value.
An Overview of Money
Money also serves as a unit of account, or a
standard unit that provides a consistent way of
quoting prices.
Commodity monies are items used as money
that also have intrinsic value in some other
use. Gold is one form of commodity money.
Fiat, or token, money is money that is
intrinsically worthless.
Legal tender is money that a government has
required to be accepted in settlement of debts.
2002 Prentice Hall Business Publishing
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