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Woman holding moneymoney3/11/2023 ![]() ![]() Barter occurs when goods are exchanged directly for other goods. ![]() We can understand the significance of a medium of exchange by considering its absence. To facilitate these exchanges, people settle on something that will serve as a medium of exchange-they select something to be money. The exchange of goods and services in markets is among the most universal activities of human life. We will learn in this chapter that changes in the way people use money have created new types of money and changed the way money is measured in recent decades. If people were to begin accepting basketballs as payment for most goods and services, basketballs would be money. ![]() When people use something as a medium of exchange, it becomes money. Money, ultimately, is defined by people and what they do. In Romania under Communist Party rule in the 1980s, for example, Kent cigarettes served as a medium of exchange the fact that they could be exchanged for other goods and services made them money. A medium of exchange is anything that is widely accepted as a means of payment. If cigarettes and mackerel can be used as money, then just what is money? Money is anything that serves as a medium of exchange. Define what is meant by the money supply and tell what is included in the Federal Reserve System’s two definitions of it (M1 and M2).Distinguish between commodity money and fiat money, giving examples of each.Define money and discuss its three basic functions. ![]()
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