March 20, 2017 - Money
8:43 PM
Money
Why do we use it? What would happen if we didn't use money?
The Barter System - Goods and services are traded directly; no money involved
What is Money?
- Anything that is generally accepted in payment for goods and services
- Money is not the same as wealth or income
Wealth - Total collection of assets that store value
Income - A flow of earnings per unit of time
Money can be used as:
- Medium of Exchange - Buy goods and services
- Unit of Account - Measuring the value of goods and services
- Store of Value - Savings and “storing” things of value
3 Types of Money:
Representative Money - Represents something of value; IOU’s
Commodity Money - Something that performs the function of money and has alternative uses; salt, gold and silver
Fiat Money - Money because the gov says so
Characteristics of Money:
- Durability
- Portability
- Visibility of Value
- Uniformity
- Limited Supply
- Acceptability
3 Types of Money Supply (Again):
Liquidity - Ease with which an asset can be accessed and converted into cash
- M1 (High Liquidity) - Coins, currency and checkable deposits; demand deposits
- M2 (Medium Liquidity) - M1 plus savings deposits, time deposits and mutual funds below $100k
- M3 (Low Liquidity) - M2 plus time deposits above $100k
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