3-4-16

Unit IVb

Money Money Money

1. Uses of Money(3)

A. Medium of Exchange- barter and trade

B. Unit of Account- it establishes economic value
Ex. Piano lessons ($10/hr), instead of money she would pay for it with a cake.

C. Store of Value- money holds it’s value over a period of time, whereas products may not.

Ex. Items stored over time $20 dollars is always $20 dollars but purchasing power is not the same.

       2.  Types of Money

A. Commodity Money- it gets its value from the type of material from which it is made

Ex. Gold and SIlver Coins

B. Representative Money- paper money backed by something tangible, that gives it value

Ex. IOU’s

C. Fiat Money- money because the government says so, backed by the US Government

Ex. Current U.S. currency

        3.   Characteristics of Money

A. Divisible

B. Portable

C. Uniform

D. Acceptable

E. Scarce

F. Durable

         4.   Money Supply

A. M1 Money- 75% of money in circulation, because it is the most liquid(easy to convert to cash)

Currency (cash and coins), Check able Deposits (Demand Deposits(Checking Accounts)), Travelers Check

B. M2 Money- consists of M1 Money, Savings Accounts, and Deposits held by banks outside of the U.S.

C. M3 Money- consists of M2 Money And Certificates of Deposits better known as CDs.
Cds. are money kept in the bank that you get interest on, if you pull out early you get fined.