UNIT 4- MONEY AND MONETARY POLICY

MONEY AND MONETARY POLICY 

• The barter system – goods and services are traded directly.  no money. 
• What is money? Anything generally accepted in payment for goods and services
• Money is not the same as wealth 
• Wealth – total collection of assets that store value. 
• Income – flow of earnings per unit of time
• Money can be used as:
• Medium of exchange – buying goods and services
• Unit of account – measuring the value of goods and services 
• Store of value 
• There are 3 types of money:
• Representative that represents something of value
• Commodity that something that performs the functions of money and has an alternative use
• Fiat– money because the government says so 
• 6 characteristics of money:
• Durability 
• portability
• Visibility
• Limited supply
• Uniformity
• Acceptability 
• Liquidity – ease with which an asset can be assessed and converted into cash:
• M1(high liquidity)- coins, currency, and checkable deposits (personal and corporate checking accounts which are the largest component of M1) A.k.a. demand deposits. MONEY SUPPLY 
• M2(medium liquidity)- M1 plus savings deposits. (Money market accounts), time deposits (CDs=certificates of deposits), & mutual funds below $100K
• M3(low liquidity)- M2 plus time deposits above $100K