Reflection on Government Participation in the Economy

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REFLECTION ON GOVERNMENT PARTICIPATION IN THE ECONOMY Cheri Cable ECO203: Principles of Macroeconomics Instructor: Nathan Rondeau June 23, 2014 - During this week’s studies, one of the first things that we as a class learned was about a Barter system. Barter system is explained as the exchanging of products, goods or services for other products, goods or services also known as counter-trade. Our text states, “Because barter can be inconvenient, money has developed as a means for trading in goods and services.” There are three basic functions of money, medium of exchange, standard of value and store of wealth. Monetary policy is the ability of central or reserve banks to influence economic activity by various tools that aim to control the interest rate and supply of money in the economy. “Money can take all kinds of physical forms. What should be used for money Stones, Shells, Beads, Tobacco, all of these have served as money at some time,” According to our text. Money must be durable, be relatively scarce, homogeneous, portable and divisible. In the US money supply consists of currency, checking accounts, traveler's checks, money market funds and savings deposits. Money supply is often divided into several parts, M1 and M2. M1 for the most part is used in conjunction with the M2 money supply measurements by economists to gauge how much money is in circulation. “M2 is equal to M1 plus small time and savings deposits and a few other specialized monetary assets,” Amacher, R., Pate, J., (2012). Our text explains the third question this week of, “Explain why people hold money and how they decide how much money to hold, “very well. “People hold money because it is convenient for market transactions. They also may hold money as one of many forms in which to store wealth.” People will compare satisfaction obtained and price level when deciding how much

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