ECON 295 Chapter 27: Chapter 27 notes.docx
9 Jan 2015
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Document Summary
Medium of exchange: anything that is generally acceptable in return for goods and services sold: money as a medium of exchange. Barter: a system in which goods and services are traded directly for other goods and services. The double coincidence of wants is unnecessary when a medium of exchange is used. By facilitating transactions, money makes possible the benefits of specialization and the division of labour. To be efficient, money must have a number of characteristics: easily recognizable and readily acceptable, high value relative to its weight. It must be divisible: reasonably durable, difficult to counterfeit, money as a store of value. To be a satisfactory store of value, money must have a relatively stable value. When the price level is highly variable, so is the purchasing power of money, and the usefulness of money as a store of value is undermined: money as a unit of account.
