Unit 4 Notes - March 3rd, 2016

Uses of Money

·         Medium of Exchange: Trade and Barter

·         Unit of Account: It establishes economics worth in the exchange process.

·         Store of Value: Money holds its value over a period of time, whereas products may not.

Types of Money

·         Commodity Money: Gets its value from the type of material it’s made from. [EX: Gold coins, Silver coins]

·         Representative Money: Paper money that is backed up by something tangible that gives it value. [EX: I.O.U.s]

·         Fiat Money: Money because the government says so. [EX: Money used in the US]

Characteristics of Money

·         Portable

·         Durable

·         Uniform

·         Scarce

·         Acceptable

·         Divisible

Money Supply

·         M1 Money: Consists of currency (Cash and Coins), checkable deposits or demand deposits (Checking Accounts), and checks. [75% most liquid (Easy to convert to cash)]

·         M2 Money: Consists of M1 Money and savings accounts and deposits held by banks outside of the United States. [Not as liquid as M1 Money]

·         M3 Money: Consists of M2 Money and certificates of deposits (CDs) [Pay a penalty if you withdraw money early.