SS.912.E.1.13 Explain the basic functions and characteristics of money, and describe the composition of the money supply in the United States Standard.

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SS.912.E.1.13 Explain the basic functions and characteristics of money, and describe the composition of the money supply in the United States Standard 1 Understand the fundamental concepts relevant to the development of a market economy SS.912.E.1.13 Explain the basic functions and characteristics of money, and describe the composition of the money supply in the United States

Three functions of money: 1)Store of value 2)Unit of account 3)Medium of exchange

2 Definitions of money: M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (4) other checkable deposits (OCDs), consisting of negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, credit union share draft accounts, and demand deposits at thrift institutions. Most liquid forms- easiest and most accepted for exchange

2 Definitions of money: M2 consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000), less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market mutual funds, less IRA and Keogh balances at money market mutual funds. Not as liquid Credit cards are NOT money!!

Approximate current levels of money As of April, 2011, M1 = $1,901 billion M2= $8,946 billion

Why do private persons in private transactions accept money? Milton Friedman: “The short answer is that each person accepts them because he is confident that others will. The pieces of green paper have value because everybody thinks they have value. Everybody thinks they have value because in his experience they have had value.” Implication: Value of money rests on a fiction

Video: History Channel US Mint paper and coin production

The Great Economics Mysteries Book Chapter 3 Lesson 10 The Gift-Giving Mystery: Why Not Just Send Money?

Focus: Understanding Economics in US History Lesson 16 Andrew Jackson and the Second Bank of the US

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