Money Makes the World Go ‘Round

What is money? With a partner, come up with a definition of money

Money is… 1) A medium of exchange 2) A unit of account Money is acceptable as a form of payment 2) A unit of account Society uses money as a yardstick for measuring the relative worth of a wide variety of goods 3) A store of value Enables people to transfer purchasing power from the present to the future People save their money so they can buy things later

Money Definition = M1 M1 consists of currency (coins and paper money) and all deposits in a bank

History Since modern money is the paper form of bartering for goods based on their value… Historically, anything could be used as money, including: Livestock Grains Beads Stones Whale’s teeth/ivory Furs Cowry shells Precious metals Salt Spices

Currency Currency is broken down into two items: 1) Token money = coins The intrinsic value of the coin is worth more than the metal itself 2) Federal Reserve Notes = paper money issued with Congress’ authorization Paper money consists of 46% of the U.S. economy M1 supply

Checkable Deposits The largest component of the M1 supply Deposits made by check placed into a bank account Recap: M1 = currency + checkable deposits

M2 M2 = M1 + savings deposits (including MMDAs) + small time deposits + MMMFs Three categories: 1) Savings deposits and a money market deposit account MMDA = an interest-bearing account that pays higher interest than a typical savings account. Acts like a checking and a savings account. 2) Money Market mutual funds An investment whose objective is to earn interest for shareholders An easy place for people to invest in easily accessible cash-equivalent assets 3) Small (less than $100,000) time deposits Funds from time deposits become available when they mature, and there are withdrawal limitations

M3 M3 = M2 + large time deposits Large time deposits = $100,000 or more

The Ascent of Money The Ascent of Money