Money and Banking

Section One
The basis of the market economy is voluntary exchange. Historically in other economies money has been made of everything from bones, whales teeth, to sheep. Three Functions of Money: *medium of exchange *unit of accounting *store of value

Three Functions of Money

Medium of Exchange: a seller will accept something in exchange for goods or services Unit of Accounting: use of money for comparing the values of goods and services in relation to one another Store of Value: use of money to store purchasing power for later use. * the base unit of measurement in the US is the almighty dollar, greenbacks, bills, Benjamin s, cash, bones, bank, or coin.

Dough!

Characteristics of Money
Durable: must be able to withstand wear and tear in exchange Portable: money must be easy to carry Divisible: money must be able to be divided into smaller parts so change can be given Stable in Value: money must be stable in value; can t change rapidly Scarce: whatever is used as money must be scarce, that is what gives it value Accepted: must be accepted as a medium exchange in payment of debts

Types of Money
Commodity Money: oil, cattle, foods, gems Representative Money: money backed by gold or silver Fiat Money: face value occurs through government order, it is declared legal tender

Money and Near Moneys

Currency: * all coins in circulation today are token coins (representation) * most of nations currency is in the form of Federal Reserve Notes * money is printed in denominations of $1, $2, $5, $10, $20, $50, and $100 bills (used to print much larger). Checks Credit and Debit Cards Near Moneys: these are assets that are similar to money

The Money Supply

M1 is the measurement of all bills, coins, checks, and travelers checks in circulation in the Market/country M2 is all of M1 plus savings accounts, stocks and bonds, money market accounts, mutual funds, and other special accounts (total of ALL money types).