Money and Financial Assets

These flashcards cover key concepts from the lecture on money and financial assets, including definitions, types, functions, and examples.

What is the definition of money?

Money is any asset that can easily be used to purchase goods and services.

What are the desirable features of money?

Durable, Portable, Uniform, Limited supply, Easily divisible into smaller units.

What is fiat money?

Fiat money is something that serves as money or currency and has no other important uses.

What is commodity money?

Commodity money is something that performs the function of money but also has an alternative, non-monetary use.

What is an example of commodity-backed money?

When paper notes and coin currency have no intrinsic value but are guaranteed by a promise to convert into gold or silver.

What are the three important functions of money?

Medium of Exchange, Unit of Account, Store of Value.

What does M1 money include?

M1 includes all cash in circulation, debit cards, checkable bank deposits, and money in savings accounts.

What distinguishes M2 from M1?

M2 includes near-money accounts including bonds, securities, and interest-bearing accounts below $100,000.

What does M3 represent?

M3 includes near-money, interest-bearing accounts above $100,000.

What are high liquidity near money assets?

M1 near money assets include money market accounts, mutual funds, time deposits, and bonds/securities.

What defines financial assets?

Financial assets are non-physical investments that entitle the buyer/holder to future income.

What are the different types of financial assets?

Bank Deposits, Loans, Bonds, and Stocks.

How do stocks generate income?

Through capital gains when shares are sold at a higher price and dividends based on the volume of stock owned.

What is the nature of credit cards?

Credit cards are short-term loans that create a liability for the consumer.