AP Macro Unit 4

Money

• anything that can be used to purchase goods & services 

  • Paper money itself doesn’t hold much value, but people recognize it as something that can purchase goods and services

Wealth

•  accumulation of savings through the purchase of assets (using money) that occurs over time. 

  • You’re acquiring your savings over time. 

Financial Assets

• written claims where buyers have the right to future income from sellers

• Have different levels of liquidity!

  • Includes cash, demand deposits (checking accounts), loans, bonds, stocks, physical assets (land, homes, cars)

Loans

 a thing that is borrowed, especially a sum of money that is expected to be paid back with interest.

Bonds

• a fixed-income instrument and investment product where individuals lend money to a government or company at a certain interest rate for an amount of time.

• Bonds are commonly issued by governments in order to take money for government projects and pay the loan back w/ interest. 

Liquidity

• how easily the asset can be converted into cash

• Cash is the most liquid financial asset that we have.

Banks

• Banks become a financial intermediary when a business owner can do business w/ a bank and acquire a loan for expanding their business.

• So for the bank, the loan is an asset. 

• For the business owner, the loan is a liability.

Stocks

 a share in the ownership of a company, including a claim on the company’s earnings and assets.

Mutual Funds

a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. (least risky)

Certificates of Deposit (CD’s)

an account that allows you to save money, typically at a fixed interest rate for a fixed amount of time.

Savings Account

 the amount of money a bank or financial institution that pays on your deposits.

Commodities

 a basic good used in commerce that is interchangeable with other goods of the same type. (most risky)

Fiat Money

a government-issued currency that is not backed by commodities such as gold or silver.