March 20, 2017

Money

The Barter System: Goods and services are traded directly. There is no money exchanged.

Money

• Anything that is generally accepted in payment for goods and services.

*Not wealth or income

• Wealth: the total collection of assets that store value.
• Income: A flow of earnings per unit of time. 

Money can be used as:

1. Medium of Exchange 

*Buy goods and services 

2. Unit of Account 

*Measuring the value of goods and services 

3. Store of Value 

3 Types of Money:

1. Representative Money: Money that represents something of value 

Ex: IOU's

2. Commodity Money: Something that performs the function of money and has alternative uses 

Ex: Salt, Gold, Silver, Cigarettes 

3. Fiat Money: Money because the government says so

Ex: Paper Money, Coins 

Six Characteristics of Money:

1. Durability 

2. Portability 

3. Visibility 

4. Uniformity 

5. Limited Supply

6. Accessibility 

3 Types  of Money Supply:

•Liquidity: Ease with which an asset can be accessed and converted into cash (liquidized)

•M1 (High Liquidity): Coins, currency, and checkable deposits (Checks; Personal and corporate checking accounts which are the largest component of M1) 

*Demand Deposit or Money Supply

•M2 (Medium Liquidity): M1 plus saving deposits (money market accounts), time deposits (CD's=Certificates of Deposit), and Mutual funds below $100k

•M3 (Low Liquidity): M2 plus time deposits above $100k