Time Value
What is Present Value?
What is the narrowest measurement of money supply?
M1
What is Commodity Money?
Commodity money is an asset used as currency that also serves another use outside of being a medium of exchange.
Define Medium of Exchange
Medium of Exchange is something that can be used to purchase good and services. For example, in the USA, the US dollar is our medium of exchange.
What is a high time preference?
What is the broadest measurement of money supply?
M2
What were two widely used currencies over time?
Gold and Silver
What is Interest?
The fee for borrowing or lending money. This fee will increase over time and is calculated using percentages.
What does M1 include?
Currency and Checkable Deposits
What was the Russian Ruble crisis of 1999?
Russians stopped using the ruble and transitioned to using vodka.
Why is money better for the economy than the barter system?
The barter system is much more complicated that our current system. Multiple prices would need to be calculated for each item, and with the size we are today, this would be impossible for producers to do.
What is a low time preference?
A consumer who is indifferent towards the time they purchase a good or service
What does M2 include?
M1 + savings deposits + small-denomination time deposits + money market mutual funds (in short, measure of the total money supply in an economy)
What happens if there is not enough of the commodity money in circulation?
The economy could slide into a recession or a depression.
What is Future Value and how do we calculate it?
Future Value is the value of an asset (such as money) in a certain amount of time including interest. The formula for Future Value is: PV(1 + i)^n = FV
What is a checkable deposit?
A bank account (such as a savings account) that you can easily access and use.
What traits must commodity money have to be accepted?
Standardized, easily divisible, portable, Physically durable, broadly demanded.