Wednesday, August 10, 2016

money & fiscal policy (notes)

uses/functions of money:
  • medium of exchange: readily acceptable, decreases transaction costs
  • unit of account/measure: availible to measure value of goods, easily divisble
  • stores of value: can store purchasing power (ability to save), value varies w rate of inflation
sources of money's value:
  • commodity money: value as good (tobacco, wheat, cows, etc.)
  • representative money: money backed by gold or silver 
  • fiat money: declared legal tender by government 
6 characteristics:
  1. durable: wear & tear, not made w just paper
  2. portable: easily carried around
  3. divisible: can easily be divided into small parts
  4. stable in value: doesn't change value rapidly (able to trust in the money)
  5. scarce: not easily or abundantly available
  6. accepted: as a medium of exchange 
fiscal policy:
fiscal policy = spending & taxes
to fight inflation, government increases taxes
during inflation, government decreases spending
deflation would cause government to increase spending
deflation would cause government to lower taxes
raise income taxes by 5% = inflation
decrease in national budget by 10% = inflation
lower corporate income taxes = deflation

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