Money

Uses of Money Vocabulary

•  Medium of Exchange - To barter/trade
•  Unit of Account - Establishes economic worth in the exchange process
•  Store of Value - Money holds its value over a period of time, whereas products do not

Types of Money Vocabulary:

• Commodity Money - Gets its value from the type of material from which it is made. EX: Gold/Silver coins
• Representative Money - Paper money backed up by something tangible that gives it value EX: IOU
• Fiat Money - Money because the gov't says so EX: US Money

Characteristics of Money:

• Portable - Money is portable
• Durable - Money is durable
• Scarce - Bills
• Divisible - Dollar - breaks down
•  Acceptable - Everywhere in [US]
• Uniform - Everywhere you go

Money Supply:

• M1 [75% most liquid] <- (easy to convert to cash) - (Currency) [cash/coins] (checking accounts) -> Checkable deposits/Demand deposits + Travelers checks
• M2 [Not as liquid to convert to cash] - Consists of M1 money along w/ saving accounts, common market accounts, and deposits held by banks outside of US.
• M3 [withdraw early = penalty] - Consists of M2 money + Certificates of Deposits (CD's) Held by private institutions