Unit 4

Money

1. 3 Uses of Money
1. Medium of Exchange: barter
2. Unit of Account: establishes economic work in the exchange process.
3. Storage Value: money holds its value over a period of time.
2. Types of Money
1. Commodity Money: it gets its value from the type of material from which it is made.
2. Representative Money: paper money backed by something tangible that gives it value.
3. Fiat Money: use in the US, it is money because the government says so.
3. Characteristics of Money
1. Portable
2. Durable
3. Divisible
4. Limited Supply
5. Acceptable
6. Uniform
4. Money Supply
• M1 Money: consist of money in circulation, checkable deposit (checking account) and travelers checks (75%). Held as a medium of exchange. It is the most liquid.
• M2 Money: consist of M1 money along with savings accounts, money market accounts, and deposits held by banks outside of the US.
• M3 Money: encompasses M2 money and certificate deposits (CD).