Understanding Money and Its Roles

These flashcards cover essential vocabulary related to money, its roles, and measures of money supply.

Commodity Money

A type of money that has intrinsic value, can be used for other purposes, such as gold, silver, and cigarettes.

Fiat Money

Money that has value because of government regulation or law; it is not backed by a physical commodity.

Medium of Exchange

A function of money that facilitates transactions by eliminating the need to trade goods and services directly.

M1

A measure of the money supply that includes all physical currency, demand deposits, and other liquid assets.

M2

A measure of the money supply that includes M1 plus savings accounts, time deposits, and money market accounts.

Liquidity

The ease with which an asset can be converted into cash without affecting its market price.

Near Money

Assets that are not cash but can easily be converted into cash; includes savings accounts and time deposits.

Fractional Reserve Banking

A banking system in which banks keep a fraction of deposits as reserves and use the rest for loans.

Travelers Check

A pre-printed check for a fixed amount that is used as a form of currency, often used when traveling.

Bank Balance Sheets

Financial statements that summarize a bank's assets, liabilities, and equity at a specific point in time.