Podcast
Questions and Answers
What is the primary role of money in an economy?
What is the primary role of money in an economy?
- To facilitate the process of exchange (correct)
- To measure the relative worth of goods and services
- To act as a store of value
- To create a scarcity of goods and services
What is the primary function of money as a unit of account?
What is the primary function of money as a unit of account?
- To provide a standard unit of measurement for the value of goods and services (correct)
- To act as a medium of exchange
- To facilitate credit transactions
- To store value over time
What is the primary characteristic of money that allows it to be easily transported?
What is the primary characteristic of money that allows it to be easily transported?
- Portability (correct)
- Recognizability
- Standardizability
- Divisibility
What is the primary problem that arises in a pure barter economy?
What is the primary problem that arises in a pure barter economy?
What is the primary function of money as a store of value?
What is the primary function of money as a store of value?
What is the primary characteristic of money that ensures its value remains stable over time?
What is the primary characteristic of money that ensures its value remains stable over time?
What is a necessary condition for a barter economy to exist?
What is a necessary condition for a barter economy to exist?
What is a shortcoming of a pure barter economy?
What is a shortcoming of a pure barter economy?
What is the primary difference between commodity money and full-bodied money?
What is the primary difference between commodity money and full-bodied money?
What is an example of a commodity that was used as a form of money in the past?
What is an example of a commodity that was used as a form of money in the past?
Why did people start using metals like gold and silver as commodity money?
Why did people start using metals like gold and silver as commodity money?
What is the purpose of a trading post in a barter economy?
What is the purpose of a trading post in a barter economy?
What is the significant difference between token money and fiat money?
What is the significant difference between token money and fiat money?
Which of the following is an example of a commodity standard?
Which of the following is an example of a commodity standard?
What is the primary function of a debit card?
What is the primary function of a debit card?
What is the key characteristic of fiat money?
What is the key characteristic of fiat money?
What is an example of bank money?
What is an example of bank money?
What is the main difference between a debit card and a stored-value card?
What is the main difference between a debit card and a stored-value card?
What is the primary function of a smart card?
What is the primary function of a smart card?
What is the primary benefit of using e-cash?
What is the primary benefit of using e-cash?
What is the function of an electronic wallet?
What is the function of an electronic wallet?
How can a consumer obtain e-cash?
How can a consumer obtain e-cash?
What is the process of sending an electronic check?
What is the process of sending an electronic check?
What is the name of the company that started testing smart cards in 1995?
What is the name of the company that started testing smart cards in 1995?
Flashcards
Electronic Cash (e-Cash)
Electronic Cash (e-Cash)
A type of electronic money used to purchase goods or services on the internet.
Stored-Value Card
Stored-Value Card
A digital cash card containing a fixed amount of money that can be reloaded.
Smart Card
Smart Card
A card with a computer chip that allows users to make purchases by transferring funds electronically from their bank accounts.
Electronic Check
Electronic Check
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Medium of Exchange
Medium of Exchange
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Store of Value
Store of Value
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Unit of Account
Unit of Account
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Standard of Deferred Payment
Standard of Deferred Payment
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Portability
Portability
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Durability
Durability
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Divisibility
Divisibility
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Standardizability
Standardizability
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Recognizability
Recognizability
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Acceptability
Acceptability
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Stability
Stability
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Scarcity
Scarcity
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Barter Economy
Barter Economy
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Commodity Money
Commodity Money
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Token Money
Token Money
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Fiat Money
Fiat Money
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Debit Cards
Debit Cards
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Pure Barter Economy
Pure Barter Economy
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Commodity Money Economies
Commodity Money Economies
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Minted Coins with Nonmonetary Values
Minted Coins with Nonmonetary Values
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Study Notes
Types of Stored-Value Cards
- A smart card contains a computer chip that can be loaded with digital cash from an owner's bank account whenever needed.
- Smart cards can be loaded from ATM machines, personal computers, or specially equipped telephones.
- Example: London-based Mondex Corp., started running tests in 1995, allowing funds to be transferred between consumers and retailers or between individuals.
Electronic Cash (e-Cash)
- A form of electronic money that can be used on the Internet to purchase goods or services.
- A consumer gets e-cash by setting up an account with a bank that has links to the Internet and then has the e-cash transferred to their PC.
Electronic Checks
- Allow users of the Internet to pay their bills directly over the Internet without sending a paper check.
- The user writes the equivalent of a check and then sends the electronic check to the other party, who in turn sends it to their bank.
Functions of Money
- Medium of Exchange: a medium that can be used to buy and sell goods and services.
- Store of Value: an asset that can be used to transport purchasing power from one time period to another.
- Unit of Account: a standard unit that provides a consistent way of quoting prices.
- Standard of Deferred Payment: facilitates the process of getting and paying credit/debt.
Properties (Characteristics) of Money
- Portability
- Durability
- Divisibility
- Standardizability
- Recognizability
- Acceptability
- Stability
- Scarcity
Evolution of Money
Barter Economies
- Pure Barter Economies: direct exchange of goods and services for other goods and services.
- Three shortcomings of a pure barter economy:
- Absence of a method of storing generalized purchasing power.
- Absence of a common unit of measure and value.
- Absence of a designated unit to use in writing contracts requiring future payments.
Commodity Money Economies
- Commodity money: physical commodities used as money, having intrinsic or physical value equal to their face value.
- Examples: wool, boats, sheep, and corn.
- Later, people used metals like gold and silver, especially since the onset of the industrial revolution in the 1800s.
Commodity Standards
- Minted coins with nonmonetary values developed, with face value equal to market value.
- Token money: money whose metallic value is lower than its face value.
Fiat Money
- Money with a commodity value much less than its value as money.
- Examples: coins and paper money issued by the central bank.
- Fiat money can be issued by the government (like coins and notes) and depositary institutions (like cheques, credit cards).
Electronic Monies (e-Money)
- Debit Cards: enable users to purchase goods by electronically transferring funds directly from their bank accounts to a merchant's account.
- Stored-Value Card: contains a fixed amount of digital cash, with the simplest example being prepaid cards.
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Description
Test your knowledge of the role and functions of money in the payment system, including its uses as a medium of exchange, unit of account, and store of value.
