The functions of money

CHAPTER OUTLINE
The functions of money
Monetary systems
Barter system
Full-bodied money
Paper money
Monetary standards
The adoption of monetary standards
Bretton Woods, 1944
The Smithsonian agreement, 1971
The Snake in the Tunnel
Expansion of the money supply by banks
Banks reserves
Money supply expansion
Defining the money supply
INTERNATIONAL COMPARISONS:
IMF members (exchange rate arrangements)
ANSWERS TO END-OF-CHAPTER QUESTIONS
1. Money serves as:
Medium of exchange. Money is universally exchanged for other commodities.
Unit of account. All other commodities are priced in terms of money.
Store of value. The value of money does not decline over time.
Standard for deferred payments. Future commitments are denominated in financial terms rather than in terms of nonmonetary commodities.
2. A modern monetary system is more efficient than a barter system because a double coincidence of want is not required for the modern system to function. That is, in a two-party transaction, it is not necessary for each party to seek the product or commodity that the other possesses. Also, pricing is less complicated in a modern monetary system. In a barter economy, the number of prices must be n(n—l)/2. In a modern monetary system, the number of necessary prices is n—i.