Money- 03/20/17

Money- 03/20/17

The Barter System:
-Goods and services are traded directly. There is no money exchanged.
-Money is generally anything accepted in payment for goods and services.
-Money is not the same thing as wealth or income

-Wealth is the total collection of assets that store value.

-Income is a flow of earnings per unit of time.

Money can be used as:
1) Medium of exchange used to determine value.

2) Unit of account: comparing cost/price

3) Store of value: hoe well does my money hold?

Three types of money:
1) Representative money: represents something of value
-IOU’s

2) Commodity money: It has value within itself
-Salt
-Gold
3) Fiat money: It is money because the government says so
-Paper money
-Coins

Characteristics of money:
1) Durability: Money is durable
2) Portability: You are able to carry is anywhere

3) Uniformity: Looks the same

4) Limited Supply
5) Acceptability: Money is accepted in all places.

Liquidity:
-ease with which an asset can be accessed and converted into cash

Three Types of money

1)    M1 Money (High liquidity)
-Coins, currency, and checkable deposits
-Personal and corporate checking accounts are the largest component of M1
-In general, this is MONEY SUPPLY

2)    M2 Money Supply (Medium Liquidity)
-M1 plus savings deposits, time deposits, and mutual funds below $100k

      3) M3 Money (Low Liquidity)
           -M2 plus time deposits above 100k