The Meaning of Money
The Meaning of Money
Medium of Exchange
- An item that buyers give to sellers when they want to purchase goods and services.
Unit of Account
- A yardstick people use to post prices and record debts.
The Meaning of Money
- Store of Value
- An item that people can use to transfer purchasing power from the present to the future.
The Meaning of Money
- World Without Money
- Barter system
- Double coincidence of wants
- In a barter system, trade requires a double coincidence of wants, where each party has something the other wants.
Two Kinds of Money
- 1. Commodity Money
- Money that takes the form of a commodity with intrinsic value.
- Intrinsic value: The item would have value even if it were not used as money.
- Examples:
- Gold standard: Paper money that is convertible into gold on demand.
- Money that takes the form of a commodity with intrinsic value.
The Kinds of Money
- 2. Fiat Money
- Money without intrinsic value.
- Fiat: by order or decree.
- Used as money because of government decree.
- Money without intrinsic value.
Measures of Money Supply
- Measures of money stock
- M1
- Currency
- Demand deposits
- Other checkable deposits
- Traveler’s checks
- M2
- Everything in M1
- Savings deposits
- Small time deposits
- Money market mutual funds
- A few minor categories
- M1