- 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:
- durable: wear & tear, not made w just paper
- portable: easily carried around
- divisible: can easily be divided into small parts
- stable in value: doesn't change value rapidly (able to trust in the money)
- scarce: not easily or abundantly available
- 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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