Money and Finance: Crash Course Economics #11

CrashCourse

14 Oct 201510:35

EducationalLearning

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TLDRThis economics video explains how money serves as a medium of exchange, store of value, and unit of account, allowing more efficient transactions than bartering. It covers the history and evolution of money, from ancient coins to modern digital currencies like Bitcoin. The script also explains the financial system, which connects lenders and borrowers through institutions like banks, bond markets, and stock markets. It emphasizes how these systems spread risk and allow capital to be raised for investments, benefiting both lenders and borrowers.

Takeaways

😀 Money serves 3 purposes: medium of exchange, store of value, and unit of account.
💡 Bartering is inefficient. Money facilitates trade and business transactions.
🤔 Anything accepted as payment can serve as money, not just cash and coins.
💰 Most money today is digital, not physical.
🪙 Bitcoin is a virtual currency not issued by a government.
📈 The stock market connects lenders and borrowers.
🏦 Banks take deposits and make loans to individuals and businesses.
💵 Bonds are debt instruments issued by governments and corporations.
📉 Stock market fluctuations don't necessarily reflect economic fundamentals.
🤝 The financial system connects lenders and borrowers and spreads risk.

Q & A

What are the three main purposes of money according to economists?
-Economists say money serves three main purposes: 1) It acts as a medium of exchange, allowing people to exchange goods and services without bartering. 2) It serves as a store of value, allowing people to save money over time. 3) It provides a standard unit of account, allowing us to measure the value of different goods in the same units (dollars).
How did the gold standard work?
-Under the gold standard, each US dollar issued was backed by and could be redeemed for a fixed amount of gold. This limited the amount of money the government could print to the size of its gold reserves.
What are the differences between stocks and bonds?
-Stocks represent ownership in a company, while bonds are debt instruments. If a company does well, stockholders may get dividends. Bondholders receive fixed interest payments. Stocks involve more risk but more potential reward than bonds.
What is the difference between debt and equity in finance?
-Debt refers to borrowing money that must be repaid, usually with interest. Equity involves exchanging money for an ownership stake. With debt, the amount owed is fixed. With equity, investors' returns depend on company performance.
What are some examples of things that have been used as money throughout history?
-Many items have served as money over time, including cattle, grains, gold, silver, cigarettes, postage stamps, large stones, and even giant stone disks on the island of Yap.
How does the financial system connect lenders and borrowers?
-The financial system uses institutions like banks, bond markets, and stock markets to connect lenders who want to invest money with borrowers who need funds. This allows lenders to spread risk and borrowers to access capital.
Why do lenders prefer the financial system over lending directly?
-Lenders can spread their investments over many borrowers through the financial system, reducing risk. Direct lending involves more risk because you rely on a single borrower repaying the loan.
What are some financial instruments that are traded?
-Financial instruments that are traded on markets include stocks, bonds, options, futures, and derivatives. Stocks and bonds are the most common instruments traded by ordinary investors.
How did the move away from the gold standard change the basis of money?
-Leaving the gold standard meant money was no longer directly backed by gold reserves. Instead, today most money derives its value from government authority and broad public confidence rather than tangible commodities.
What is Bitcoin and how does it differ from traditional currency?
-Bitcoin is a decentralized digital currency that uses cryptography to control transactions. Unlike traditional money, it is not issued by any government and exists electronically without a central regulating authority.

Outlines

00:00

🤝 Introducing the hosts and overviewing money and trade.

Adriene and Jacob introduce themselves as the hosts. They state that economics is not about getting rich quick, but about trading things you have for things you want. They give an example of trading a zucchini for pizza.

05:03

🏪 The difficulties of bartering and the usefulness of money.

Without money, transactions require directly trading goods and services through the inefficient barter system. Money allows indirect transactions, acting as a medium of exchange, store of value, and unit of account. It is more efficient than bartering.

10:04

💰 The history and changing forms of money.

Money can take many forms, not just physical cash. It can be coins, cigarettes, clamshells, etc. The key is its acceptance as a medium of exchange. Today, much money is digital and involves banks. Bitcoin is a virtual currency not regulated by any nation.

📈 The value and backing of money.

Money has value because people believe it has value, not because it's redeemable for gold. The gold standard has been abandoned. Money works through collective confidence in the monetary system.

📊 Explaining the stock market and financial system.

The stock market connects lenders and borrowers. It is one part of the larger financial system. Banks, bonds, and stocks link savers to borrowers and spread risk. Changes in stock markets do not necessarily indicate economic health.

🤝 Why we need a financial system.

The financial system connects lenders and borrowers efficiently. It allows pooling capital from many small lenders. Individual loans and investments are risky, but the system spreads risk.

💰 Appreciation for viewers enabling the show.

Thanks to the viewers for supporting Crash Course financially. Viewer contributions help keep the show free and available through Patreon.

Mindmap

Keywords

💡barter system

A system where goods and services are directly exchanged for other goods and services, without using money as a medium of exchange. The video gives an example of how inconvenient bartering can be for something like getting dental work in exchange for a car.

💡medium of exchange

Anything that is generally accepted as payment for goods and services. Money serves this purpose and facilitates transactions much more easily than direct bartering.

💡store of value

The ability of money to maintain its value over time, so that it can be saved and used later. This is why dentists normally do not accept perishable fruit as payment.

💡unit of account

A standardized system of measuring the value of goods and services. Using money as this common metric is easier than trying to value things in terms of disparate items through bartering.

💡Bitcoin

A digital currency that is decentralized and not tied to any country. It appeals to those who distrust central banking and can facilitate anonymous transactions, but also speculation.

💡confidence

Trust that money has inherent value, even if it is just paper that is no longer backed by gold. As long as there is widespread confidence, the monetary system functions.

💡financial system

The networks of institutions, markets, and contracts that enable lending and borrowing. This system matches those who want to grow their money over time with those who need financing.

💡debt

Money that is borrowed and must be paid back with interest over time, like with bank loans or bonds. Debt instruments have defined repayment terms.

💡equity

Sharing ownership in an asset, like through company stocks. Equity allows investors to profit if the asset performs well, but they also risk losing money.

💡Dow Jones Industrial Average

A stock market index that tracks the stocks of major industrial companies. Its fluctuations are often featured in the news, but changes may not reliably indicate broader economic health.

Highlights

Presented a new deep learning model called Transformers that achieved state-of-the-art results in machine translation.

Proposed attention mechanism in Transformers allows model to focus on relevant parts of input and output.

Demonstrated how Transformers can be pre-trained in an unsupervised manner then fine-tuned for downstream tasks.

Introduced BERT model based on Transformers that achieved new state-of-the-art results in 11 NLP tasks.

Presented results showing BERT requires significantly less training data to achieve strong performance.

Discussed limitations of BERT including being unidirectional and static during pre-training.

Proposed XLNet to overcome limitations of BERT using autoregressive pre-training.

XLNet outperforms BERT on various tasks including question answering and sentiment analysis.

Presented RoBERTa which is a robustly optimized BERT pre-training approach.

RoBERTa achieves state-of-the-art results by modifying key hyperparameters of BERT.

Discussed future directions including compressing Transformer models and adapting them to more tasks.

Highlighted importance of developing methods to interpret and analyze Transformer models.

Emphasized need for further work on efficient training of Transformers given their high computational cost.

Concluded Transformers are essential breakthrough in NLP with significant room for improvement.

Suggested potential of Transformers for multimodal applications such as image captioning.

Transcripts

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