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AK/ECON 3430 3.0 A Money, Banking and Finance A Fall 2014

AK/ECON 3430 3.0 A Money, Banking and Finance A Fall 2014. Prof. Brenda Spotton Visano Sept 15, 2014. Class 2 Agenda. Review and Questions Course Web Page, including Class Notes: http://www.yorku.ca/spotton/3430F14 Stylized Development of a Monetary Economy

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AK/ECON 3430 3.0 A Money, Banking and Finance A Fall 2014

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  1. AK/ECON 3430 3.0 AMoney, Banking and Finance AFall 2014 Prof. Brenda SpottonVisano Sept 15, 2014

  2. Class 2 Agenda • Review and Questions • Course Web Page, including Class Notes: http://www.yorku.ca/spotton/3430F14 • Stylized Development of a Monetary Economy • What is Money? What is its Value? • What economic/social purpose does it serve? • What counts as money in Canada?

  3. Stylized Development of a Monetary Economy: Overview Development in 5 stages • Stage 1: Self-sufficiency • Stage 2: Specialization and Exchange • Stage 3: Money, its Value & Monetary Institutions

  4. Stylized Development : Caveat and Objectives • Does not reflect actual history; it is only a metaphor • Does illustrate some of the economic functions of financial instruments and financial processes • Does illustrate how finance and the macro economy are thought to be related • Promotes a sense of agency; what we observe is the result of conscious decision and can be changed.

  5. Stage 1: Self-sufficiency Imagine you are out in the wilderness by yourself • What are your primary activities? • How do you allocate your time across these activities? • What determines the amount and variety of goods you can consume?

  6. Stage 2: Specialization Now imagine that we have come together to form a small community: • What are our primary activities? • How do we allocate our time and effort across these activities? Who produces what? (Allocation of resources) • What is Absolute Advantage? … Comparative Advantage?

  7. Stage 2: Exchange With specialization we must exchange goods/services for goods/services • Who gets what and How do we make this decision? (Distribution of resources) • How do we determine the rate at which we exchange goods? (Relative prices/Terms of trade)

  8. Distribution and Exchange • Equal distribution of all goods produced? • Based on costs of production? E.g., Labour Theory of Value • Based on costs of production and preferences? • Do we support those unable to work? Who supports these members of our community? How?

  9. Stage 3: Money and Markets • Barter requires double coincidence of wants and the negotiation of a multitude of relative prices. • Can we do better than barter exchange? • Suppose I offer rocks as a medium of exchange; will this work? Why/why not? • What are the characteristics of an effective medium of exchange?

  10. Bank Account Balances • How does a chequing account balance act as a medium of exchange? • How is it related to currency? • Is the bank balance in your chequing account “money”? Is a cheque “money”?

  11. Media of Exchange Today • What things act as a medium of exchange today? • If you were to add up all the media of exchange in Canada, what would you count? • What does the Bank of Canada count when it measures the “money supply”?

  12. What is the value of money? • What is seignorage? • Is currency backed by anything of use-value? What is “fiat currency”? • What is purchasing power? What is inflation? • What are the benefits of “money”? • More challenging questions: • How are money and economic activity related? • Does money create value?

  13. Review - What is Money? • What are its Functions? Functional Definition of Money • Characteristics of Money as an Effective Medium of Exchange • Canadian Measure (Definition) of the Money Supply • The Value of Money – its Price, its Value in Exchange, its Value in the Economy • More challenging Questions: • Is money based on trust? • Is money neutral in the sense of leaving unaltered the underlying economic values and relationships? • What is “social” or “public” about money?

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