AP Economics Mr. Bernstein Module 23: The Definition and Measurement of Money February 27, 2014

AP Economics Mr. Bernstein The Definition and Measurement of Money Objectives - Understand each of the following: The definition and functions of money The various roles money plays and the many forms it takes in the economy How the amount of money in the economy is measured 2

AP Economics Mr. Bernstein Roles of Money Definition: Money is anything that is easily exchangeable for goods and services Money is NOT the same thing as wealth Medium of Exchange Eliminates difficulties of barter system Store of Value Does not decay (other than inflation) Measure of the relative worth of goods and services 3

AP Economics Mr. Bernstein Types of Money Commodity ie gold or silver, often has other intrinsic uses Commodity-backed money No intrinsic value but has promise of ability to be converted into commodity with value 4

AP Economics Mr. Bernstein Types of Money, cont. Fiat money Value derives entirely from its official status as medium of exchange This note is legal tender for all debts, public and private. 5

AP Economics Mr. Bernstein Measuring the Money Supply Monetary Aggregates M1 = Currency and coin in circulation + checking deposits + travelers checks M2 includes near monies easily exchangeable into cash and paying interest M2 = M1 + savings accounts + short term CDs + money market accounts 6