Unit 4: Money

Money

3 uses of $$

1) Medium of Exchange

    - to trade

2) Unit of Account

    - establishes economic worth in the exchange process

3) Store of Value

    - money holds value over a period of time where as product do not

3 Types of $$

1) Commodity Money

     - it gets its value from the type of material from which it is made 

   ex: gold and silver coins

 2) Representative Money

      - Paper money backed up by something tangible that glues it value

3) Fiat Money 

    - It's money because the government say so

  [money we use in U.S]

Characteristics of Money

• Portable Money - you can take your money anywhere ..folded, washed, wrinkled
• Durable
• Scarce - credit card
• Divisible - how many ways to break
• Acceptable
• Uniform - save no matter where you go

Money Supply

a) m1 money

• Currency - composed of cash and coins
• checkable deposit or demand deposit
• travel check
• 75% of correlation
• most liquid (easy to connect to cash )

b) m2 Money

• Consist m1 money along with saving account, market account and deposit held by banks outside U.S
• not as liquid money to convert

c) m3 money

• consist m2 money + certificate of deposit (CD) held by private institution