1. Barter vs Money
Money much more efficient
2. Origins of money
Predate history
Commodity money
Coin
Paper money: Convertible and fiat
Demand deposits, money market
Credit cards
Anything that can be used for the purpose of exchange
3. Properties
Store of value
Unit of account
Liquidity and near money: Technology
Banking
Goldsmith:
Charges customers fee for providing safety as a
service
Bank:
Pays interest on deposits and earns interest on
loans. Bank makes a profit because the interest on loans is higher
than interest on deposits. Depositors prefer bank to Goldsmith
because instead of having to pay a price for the security service,
the bank pays them interest. Because a bank is bankrupt if all its
customers demand reserves at the same time, the bank is riskier than
the goldsmith.
Remember: A bank is in business to make a
profit. Banks are only going to make loans if they think they will be
repaid. In a major recession or a depression, banks are afraid of bad
loans and want to keep extra reserves as a precaution.
Go to Geometric Series