Unit 4: Money and Monetary Policy 3/20/17

What would happen if we didn't have money?
The Barter System: Goods & services are traded directly. There is no money exchanged.

Money: Anything that is generally accepted in payment for goods & 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 a:
1. Medium of Exchange
-Buy goods & services
2. Unit of Account
-Measuring the value of goods & services
3. Store of Value

3 Types of Money:
Representative Money (represents something of value):
-IOU's
Commodity Money (something that performs the function of money & has alternative uses):
-Salt
-Gold
-Silver
-Cigarettes
Fiat Money (money because the government says so):
-Paper Money
-Coins

6 Characteristics of Money:
1. Durability
2. Portability
3. Divisibility
4. Limited Supply
5. Uniformity
6. Acceptability

3 Types of Money:
Liquidity: Ease w/ which an asset can be accessed and converted into cash (liquidized)
M1 (High Liquidity): Coins, currency, and checkable deposits. AKA demand deposits. In general, this is the MONEY SUPPLY.
M2 (Medium Liquidity): M1 plus savings 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.