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Finance bulgaria

Jun 02, 2018




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    Economic definition:

    Money is anything that is generally

    accepted in payment for goods or services

    or in the repayment of debts.

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    What is the difference between

    them?- Wealth-not only money but also other assetssuch as bonds, common stock, art, land,

    furniture, cars, and houses.- Income- a flow of earnings per unit of time.

    Money, by contrast, is astock: It is a certainamount at a given point in time.

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    How many official currencies are

    there in the world?

    Which is the one with the largest


    Which active one is the oldest?

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    1) Medium of exchange

    - distinguishes money from other assets

    - Decreases the transaction costs

    - Promotes efficiency

    - Encourages specialization and divisionof labor

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    For a commodity to function effectively asmoney, it has to meet several criteria:

    (1) It must be easily standardized, making it

    simple to ascertain its value;

    (2) it must be widely accepted;

    (3) it must be divisible, so that it is easy to

    make change;(4) It must be easy to carry;

    (5) it must not deteriorate quickly.

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    2) Unit of account

    -it is used to measure value in theeconomy.

    - Using money as a unit of account lowerstransaction costs in an economy byreducing the number of prices that need

    to be considered.

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    3) Store of value

    - it is a repository of purchasing power over


    -used to save purchasing power from thetime income is received until the time it isspent.

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    What is it?

    - therelative ease and speed with which an

    asset can be converted into a medium of

    exchange. Money is the most liquid asset of all because:

    it is the medium of exchange;

    it does not have to be converted intoanything else to make purchases.

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    Money made up of precious metals oranother valuable commodity

    The problem:such a form of money is very heavy and ishard to transport from one place to


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    Paper currency decreed by governments

    as legal tender (meaning that legally it

    must be accepted as payment for debts)

    but not convertible into coins or precious


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    Money functions: medium of exchange, store value and unit of

    account. Which function is illustrated in each of the cases below?

    The 8 years old Mark puts the change, left from his 5 lv daily

    money, into his piggy-box on his desk./Store of value/

    Everyone knows, even non-smokers, that the prices of

    everything in jail are measured in cigarettes.

    /Unit of account/ Jason considers that the alternative costs of his free time are

    equal to 15 leva.

    /Unit of account/

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    Ani buys a painting - present to her parents, for 250 levs.

    /Medium of exchange/

    This function is important because it allows people to

    specialize in what they do best.

    /Medium of exchange/

    The function which makes the transaction costs in the

    economy smaller, because of the fact that it decreases the

    number of prices of one commodity

    /Unit of account/

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    Number ofcommodities

    Number of priceseconomy usingmoney

    Number of prices inbarter economy

    5 5 10

    25 25 300

    50 50 1225

    500 500 124 750

    5000 5000 12 497 500

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    M1 M2= 1 + quasi-money

    M3 = 2 + tradedinstruments

    Currency outside theMFIs

    1 Debt securities issuedup to 2 years

    Overnight deposits Deposits with agreedmaturity up to 2 years

    Shares and units ofmoney market funds

    Deposits redeemable

    at notice up to 3months

    Repo operations

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    Place the following according to the aggregate thebelong to:

    Currency in circulation Saving deposits

    Overnight deposits Repo operations Shares of the money marker funds Debt securities with maturity longer than 2 years Capital and bank reserves

    Deposits of the central government Deposits of Sofia Municipality with maturity less than 2

    years A deposit with notice for withdraw less than 15 days

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    What happens with the money aggregates ineach of the following cases?

    1) I decide to deposit 500 leva from my walletinto a 2 years deposit

    2) A repo operation for 1 million leva istransformed as follows200 thousand areused to cover operational expenses incash, 500 thousands are left in the current

    account, 300 thous. are invested in sharesof Microsoft

    3) A 1 year deposit for 2 mill. is transformed asfollows1 mill. Is left in the current accountand 1 mill. Is invested in repo operations

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    where Pis the price level, Mis quantity of money Qis aggregate output

    P * Q - final goods and services produced in theeconomy/ (Total spending P * Q is also thought ofas aggregate nominal income for the economy oras nominal GDP.)

    Vvelocity of money- total spending P * Q divided by the quantity of

    money M- the average number of times per year (turnover)

    that a lev is spent in buying the total amount of

    goods and services produced in the economy.

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    M*V=P*Q=Y 100*V=P*Q=400 V=400/100 V=4


    The increase of Y from 400 to 440billion doesnt definitely mean that the

    real output has increased, because the growth of the nominal income could

    be caused by an increase in the price level, the real output or by both.

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    The money velocity in an economy is equal to 4,

    where M is 150 bill. and the nominal income is

    600 bill. Having in mind the money velocity,

    does that mean that each currency in thiseconomy is used 4 times?

    Answer: The velocity measures how many times

    averagely a given currency is used, thus acurrency in this economy could be used more or

    less than 4 times.

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    1. Currency includesA) paper money and coins.B) paper money, coins, and checks.

    C) paper money and checks.

    D) paper money, coins, checks, and savings deposits.

    Answer: A

    2. The total collection of pieces of propertythat serve to store value is a personsA) wealth.

    B) income.C) money.

    D) credit.

    Answer: A

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    3. Which of the following statements usesthe economists definition of money?A) I plan to earn a lot of money over the summer.B) Betsy is rich she has a lot of money.C) I hope that I have enough money to buy my lunch today.D) The job with New Company gave me the opportunity to earn moremoney.Answer: C

    4.________ are the time and resources spenttrying to exchange goods and services.A) Bargaining costs.B) Transaction costs.

    C) Contracting costs.

    D) Barter costs.

    Answer: B

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    5. When compared to exchange systems thatrely on money, disadvantages of the bartersystem include:A) the requirement of a double coincidence of wants.B) lowering the cost of exchanging goods over time.

    C) lowering the cost of exchange to those who would specialize.D) encouraging specialization and the division of labor.Answer: A

    6. For a commodity to function effectively asmoney it must beA) easily standardized, making it easy to ascertain its value.B) difficult to make change.C) deteriorate quickly so that its supply does not become too large.D) hard to carry around.Answer: A

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    7. Kevin purchasing concert tickets with his debitcard is an example of the ________ function ofmoney.A) medium of exchangeB) unit of accountC) store of value

    D) specializationAnswer: A

    8. When money prices are used to facilitate

    comparisons of value, money is said to function as aA) unit of account.B) medium of exchange.

    C) store of value.

    D) payments-system ruler.Answer: A

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    9. If there are four goods in a barter economy, then one needs

    to know ________ prices in order toexchange one good for another.

    A) 8

    B) 6

    C) 5D) 4Answer: B10. Dennis notices that jackets are on sale for $99. In this casemoney is functioning as a ________.A) medium of exchange

    B) unit of account

    C) store of value

    D) payments-system ruler

    Answer: B

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    11. Patrick places his pocket change into his savings bank

    on his desk each evening. By his actions, Patrick indicatesthat he believes that money is aA) medium of exchange.B) unit of account.C) store of value.

    D) unit of specialization.Answer: C

    12. Increasing transactions costs of selling an asset makethe assetA) more valuable.B) more liquid.C) less liquid.D) more moneylik

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