March 20, 2017

Unit 4 Notes

Why do we use money?

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

What is money? 

• Anything that is generally accepted in payment for goods & services 

Money is not the same as wealth or income

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

What can money be used as?

1. Medium of exchange. (Buy goods & services)
2. Unit of account.(Measuring the value of goods & services)
3. Store of value.

What are the three types of money?

• Representative money (IOU's)
• Commodity money (Salt, Gold, Silver, Cigarette)
  
• Something that performs the function of money & has alternative uses.
• Fiat money (Paper money, Coins) 
• Money because the government says so. 

What are six characteristics of money? 

1. Durability 
2. Portability 
3. Divisibility 
4. Uniformity 
5. Limited supply
6. Acceptability 

What are the three types of money supply?

• Liquidity- ease with which an asset can be accessed & converted into cash (liquidized) 

1. M1- 
• *High liquidity* 
• includes coins, currency, & checkable deposit (personal & corporate checking accounts which are the largest component of M1) 
• In general this is the money supply.
2. M2- 
• *Medium liquidity* 
• M1 + Savings deposits (Money market accounts), & Mutual Funds below money look 
3. M3
• *Low liquidity* 
• M2 + Time deposits above money look