Money

If we had no money, we would use barter system: goods/ services traded directly with no money exchanged.

Money

• Anything generally accepted in payment for goods and services
• NOT wealth or income
• Wealth: total collection of assets that store value
• Income: Flow of earnings per unit of time

Can be used as:

1. Medium of exchange: buying goods and services
2. Unit of Account: measuring value of goods and services
3. Store of Value

3 types of Money

1. Representative Money: Represents something of value. Ex: IOU’s
2. Commodity Money: Something that performs functions of money and has alternative uses. Ex: good, silver, salt
3. Fiat Money: Money because government says so. Ex: paper money, coins

6 Characteristics Of Money

• Durability
• Portability
• Divisibility
• Limited Supply
• Uniformity
• Acceptability

Liquidity: ease in which an asset an be accessed and converted into cash (liquidized)

• M1 (high liquidity) coins, currency, and checkable deposits (checks) (personal and corporate checking accounts which are largest components of M1) AKA demand deposits. MONEY SUPPLY
• M2 (medium liquidity)  M1 + savings deposits (money market accounts), time deposits (CD’s = certificates of deposit), and mutual funds below $100k
• M3 (low liquidity) M2 + time deposits above $100k