金融英语课件李丽 马跃ISBN 9787810788175 PPTchapter_2.pptVIP

Chapter 2 Money Chapter 2 Money Definition of Money To define money merely as currency is much too narrow, because checks are also accepted as payment for purchases, and checking account deposits are considered money as well. An even broader definition of money is often needed because other items such as savings deposits can in effect function as money if they can be quickly and easily converted into currency or checking account deposits. Function of Money Medium of Exchange Unit of Account Store of Value 1. Medium of Exchange In almost all market transactions in an economy, money in the form of currency or checks is a medium of exchange; it is used to pay for goods and services. Most people insist on payment in money at the time a good or service is supplied because the alternatives just don’t work very well. For example, barter in which a good or service is exchanged directly for another good or service requires that a plumber who needs food find a grocer who needs a plumbing repair. As you might expect, this search will be difficult and time-consuming. The time spent trying to exchange goods and services is called a transaction cost. In a barter economy, transaction costs are high because people have to satisfy a “double coincidence of wants”—they have to find someone who has a good or service they want and who also wants the good or service they have to offer. The use of money as a medium of exchange promotes efficiency by eliminating much of the time spent in exchanging goods and services. Money is therefore essential in an economy: it is a lubricant that allows the economy to run more smoothly by lowering transaction costs, thereby encouraging specialization and the division of labor. 2. Unit of Account Just as we measure weight in terms of pounds or distance in terms of miles, we measure the value of goods and services in terms of money. Money is the unit of account that we use to quote prices and record debts. We c