Money

Unit 4: Money (04.09.18)

Uses Of Money

  1. Medium of exchange
    • ex: bake cakes instead of paying cash
  2. Unit of account
    • economic value
    • ex: amount per product in package
  3. Store of value
    • interest value

Types Of Money

  1. Commodity money
    • ex: gold & silver
  2. Representative money
    • ex: IOUs
    • exchange of items of perceived value (fix computer for a dog)
  3. Fiat money
    • has value bc the gov't said so

Characteristics Of Money

  1. Durability
  2. Portability
  3. Divisibility
  4. Uniformity
    • money is supposed to look the same (one $5 bill looks like another)
  5. Scarcity
  6. Acceptability
    • places that don't accept cash

Money Supply

  • M1 Money
    • consists of cash, coins, currency, traveller's checks, & demand or checkable deposits (DD/CD, aka checking accounts)
    • 75%
  • M2 Money
    • consists of M1 money + savings accounts
  • M3 Money
    • consists of M2 money + money market account + CDs (certificate of deposits)

Liquidity

  • easy to convert to cash
  • M2 & M3 money is very liquid
  • M1 not very liquid due to checkable deposits

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