What is money doc

Chapter 3
What Is Money?
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Meaning of Money
•
Money (money supply)—anything that is
generally accepted in payment for goods
or services or in the repayment of debts
(coins, bill, checks).
•
Wealth—the total collection of pieces of
property that serve to store value
(checking account, stock, bonds, cars,
houses…)
•
Income—flow of earnings per unit
of time
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Functions of Money
3 functions:
1/ Medium of Exchange—promotes economic efficiency
by minimizing the time spent in exchanging goods
and services

Must be easily standardized

Must be widely accepted

Must be divisible


Must be easy to carry

Must not deteriorate quickly
2/ Unit of Account—used to measure value in
the economy: we measure the value of goods &
services in terms of money.
3/ Store of Value— power - used to save purchasing
power; most liquid of all assets (that why we want to
keep money) but loses value during inflation
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Evolution of the Payments System
•
Commodity Money: money made up of
precious metal such as gold or silver or
another valuable commodity.
•
Fiat Money: paper currency.
•
Checks
•
Electronic Payment
•
E-Money
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How Reliable are the Money Data?

•
Revisions are issued because:

Small depository institutions report infrequently

Adjustments must be made for seasonal variation
•
We probably should not pay much attention to
short-run movements in the money supply
numbers, but should be concerned only with
longer-run movements
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