Chapter 10: Problem 1

Define: a. barter economy b. transaction costs c. money d. medium of exchange e. unit of account f. store of value g. fractional reserve banking

Short Answer

Expert verified

a. Barter Economy: Direct exchange of goods/services without use of money. b. Transaction Costs: Costs involved in an economic exchange. c. Money: Item/record accepted as payment. d. Medium of Exchange: Intermediary used in trade. e. Unit of Account: Standard numerical unit of market value measurement. f. Store of Value: Asset that maintains value. g. Fractional Reserve Banking: A banking system where only a fraction of bank deposits are backed by actual cash on hand.

Step by step solution

Define Barter Economy

A barter economy is one where goods and services are exchanged directly for other goods and services without using a medium of exchange, such as money.

Define Transaction Costs

Transaction costs are the costs involved in making an economic transaction. They might include fees, time, and the mental effort of making the exchange.

Define Money

Money is any item or record that is generally accepted as payment for goods and services or repayment of debts in a particular country or socioeconomic context.

Define Medium of Exchange

A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system, such as money.

Define Unit of Account

A unit of account is a standard numerical unit of measurement of the market value of goods, services, and other transactions. E.g., in the United States the unit of account is the Dollar.

Define Store of Value

A store of value is an asset that maintains its value without depreciating, like gold or other precious metals. Money can also be a store of value, but only if inflation is not an issue.

Define Fractional Reserve Banking

Fractional reserve banking is a system in which only a fraction of bank deposits are backed by actual cash on hand and are available for withdrawal. This is considered to be most efficient since it allows banks to use the rest of the money in various investment projects or loan it out.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!