Unit 4 - money

Money

1) Uses of money

1. medium of exchange (trade)
2. unit of account (establishes economic worth in exchange process)
3. store of value (money holds is value over period of time whereas products may not)

2) Types of money

1. Commodity money (it gets its value from type of material from which it is made)
2. Representative money- paper money that is backed by something tangible that gives it value
3. flat money- it has its value because government says so

3) Characteristics of money

• durable
• portable
• scarce
• acceptable
• uniform
• divisible

4) Money Supply

1. M1 money- currency, checkable deposits (demand deposits, checking accounts), traveler's checks. Easy to convert in cash (most liquid)
2. M2 money- consists of M1 money + savings accounts + deposits held by banks outside the U.S.
3. M3 money- includes M2 money + certificates of deposits