4.3A Definition, Measurement, and Functions of Money

These flashcards cover key concepts from the lecture on the definition, measurement, and functions of money.

Money

Any asset that can easily be used to purchase goods and services.

Functions of Money

The three main functions are a medium of exchange, a store of value, and a unit of account.

Medium of Exchange

An asset that individuals use to trade for goods and services.

Store of Value

A means of holding purchasing power over time.

Unit of Account

A measure used to set prices and make economic calculations.

Monetary Aggregates

Measures of the money supply, including M1 and M2.

M1

The narrower definition of money supply including currency in circulation, checkable deposits, and other liquid deposits.

M2

Includes M1 plus less liquid 'near-moneys' that can be readily converted into cash.

Fiat Money

A medium of exchange whose value derives entirely from its official status as a means of payment.

Commodity Money

A good used as a medium of exchange that has intrinsic value in other uses.

Commodity-Backed Money

A medium of exchange with no intrinsic value, but guaranteed by a promise that it can be converted into valuable goods.

Monetary Base (MO or MB)

The total amount of currency that is in circulation or kept on reserve by commercial banks.

Liquidity

The ease with which an asset can be converted into cash.

Double Coincidence of Wants

The problem in a barter system where two parties can trade only if each wants what the other has.