- The Barter System
- Goods & services are traded directly. There is no money exchanged.
- What is Money?
- Anything that is generally accepted in payment for goods & services.
- Money is NOT the same as wealth & income.
- Wealth is a total collection of assets that store value.
- Income is a flow off earnings per unit of time.
- Money Can Be Used as a
- Medium of Exchange
- Buy goods & services
- Unit of Account
- Measuring the value of goods & services
- Store of Value
- 3 Types of Money
- Representative Money
- Money that represents something of value
- IOU's
- Commodity Money
- Something that performs the function of money & has alternative uses.
- Salt, gold, silver & cigarettes
- Fiat Money
- Money because government says so
- Coins, paper money
- Six Characteristics of Money
- Durable
- Portability
- Divisibility
- Uniformity
- Limited Supply
- Acceptability
- 3 Types of Money Supply
- Liquidity
- Ease with which an asset can be accessed and converted into cash (liquidized)
- M1 (high liquidity)-
- Coins, currency, and checks
- Personal & corporate checking accounts which are the largest components of M1.
- In general, this is the money supply
- M2 (medium liquidity)-
- M1 plus savings deposits (money market accounts)
- Time deposits (CD's: Certificates of deposit)
- M3 (low liquidity)-
- M2 plus time deposits above $100k
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