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Econ $ and Banking

Midyear Prep

QuestionAnswer
barter a trade that doesn't involve money to facilitate the deal
currency It resembles the relationship between a creditor and a debtor. The purpose of money is to easily and smoothly trade goods and services. It is a means of exchange, stores value, and is a unit of account.
adverse selection wrong/risky people buy insurance
Consumer Price Index a measure of the average change in prices over time in a fixed market basket of goods and services, measures inflation
cost-push inflation Inputs/factors of production are harder to get => cost of production and raw materials are high, decreases efficiency and growth, always bad
deflation Decrease in prices, purchasing power of a unit of currency increases for consumers
demand-pull inflation When the gov’t creates more money which increases demand, as demand increases, supply decreases or stays the same so prices go up, as long as it’s mild it’s good => leads to increase in growth
inflation Increase in PRICES, reduction in purchasing power of a unit of currency
moral hazard because people are insured, they now do riskier things
What is the purpose of money? means of exchange: facilitates sale/trade of goods; stores value: people can save money because it will hold its value over time; unit of account: measurement that values goods and services, make calculations and record debt, measurement of value
Why do governments fear inflation? it makes the economy less stable. When prices fluctuate a lot it creates uncertainty which makes businesses anxious and less likely to grow, and consumers worried and less likely to spend, which in turn hurts business more.
What determines the value and stability of a particular currency? Whether or not the people believe in the value of the currency.
Who benefits and who fears inflation? When inflation happens, people in debt benefit because their debts don't increase but their wages likely do - when all prices rise and debts don't, debts become relatively less significant.
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