Unit 4- Introduction to Money

Uses of Money

• Medium of exchange- used to barter/trade
• Unit of Account- establishis economic worth in an  exchange process
• Store of Value- money holds its value over a period of time while products may not

Types of Money

• Commodity Money- gets it value from the type of material its made from
• Representative Money- paper money that is backed by something tangible (gold standard)
• Fiat Money- money backed by the word of the government

Characteristics of Money

• Portable, durable, uniform, scarce, acceptable, divisible

Money Supply

• M1 Money-currency(cash and coins), checkable deposits/demand deposits (checking accounts), traveler's checks; M1 is most liquid money, makes up 75% of money. Liquid money is easy to convert to cash
• M2 Money- consists of M1 money and saving accounts and deposits held by banks outside of US. M2 is not as liquid as M1 money
• M3 Money- consists of M2 money and certificate of deposits (CD's); any money that is withdrawn must be paid with interest