Unit IV: Money: Introductory Notes

I.                   Uses of Money

a.    Medium of exchange (trade or barter)

b.    Unit of amount (establishes economic worth in exchange process)

c.     Store of value (money holds it value over a period of time, where products may not)

II.                Types of money

a.    Commodity money (get its value from the type of material which it is made). An example would be gold and silver coins

b.    Representative money (paper money that is backed by something tangible that gives it value)

c.     Fiat money (is money because the government says so)

III.             Characteristics of money

a.    Durable

b.    Portable

c.     Scarce

d.    Divisible

e.    Acceptable

f.      Uniform

IV.             Money Supply

a.    M1 money

-75%

-Most liquid

-Easy to convert into cash

i.                   Currency (coins and cash)

ii.                 Checkable deposits also are known as deposits demand (checking accounts, however, the term checking accounts is not used)

iii.              Traveler’s check

b.    M2 money

                                                       i.            Consist of M1 money + savings account + money market accounts+ deposits      held by banks outside of the U.S.

                                                     ii.            Not as liquid as M1 money

c.     M3 money

i.                   Includes M2 money + certificate of deposit’s (CD’s)

ii.                 When money is kept in CD’s, it will grow