Definition, Measurement, and Functions of Money

Money Is

• Any asset that is accepted as a means of payment

• It is termed as Fiat Money, meaning that it intrinsically holds no real value, but is only is worth any amount based on societies view of it

• Real value of money is set by the # of goods and services it can purchase

3 Functions of Money

Unit of Account

• It means that people commonly accept money as a way to set prices

Store of Value

• means money holds purchasing power over time

• Is not unique to money, but a characteristic

Medium of Exchange

• Money is exchanged for goods and services

• It has helped economies grow fasterby facilitating transactions, reducing the need for barter, and enabling businesses to operate more efficiently.

Money Supply

• A country’s money supply has two bases: Currency and circulations, and bank reserves

• Certificates of deposit are part of M2

• demand deposits are part of M1