Module The Definition and Measurement of Money KRUGMAN'S MACROECONOMICS for AP* 23 Margaret Ray and David Anderson

What you will learn in this Module : 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

What is money? What is money? Money Currency in Circulation Checkable Bank Deposits Money Supply Money v. Barter

Roles of Money Roles of Money Medium of Exchange - Your employer exchanges dollars for an hour of your laborMedium of Exchange - Your employer exchanges dollars for an hour of your labor Store of Value - So long as prices are not rapidly increasing, money is a decent way to store valueStore of Value - So long as prices are not rapidly increasing, money is a decent way to store value Unit of Account - Units of currency (dollars, euro, yen, etc) measure the relative worth of goods and services just as inches and meters measure relative distance between two points.Unit of Account - Units of currency (dollars, euro, yen, etc) measure the relative worth of goods and services just as inches and meters measure relative distance between two points.

Types of Money Commodity Money - something used as money, normally gold or silver, that has intrinsic value in other usesCommodity Money - something used as money, normally gold or silver, that has intrinsic value in other uses Commodity-backed Money - a medium of exchange with no intrinsic value whose ultimate value was guaranteed by a promise that it could always be converted into valuable goods on demandCommodity-backed Money - a medium of exchange with no intrinsic value whose ultimate value was guaranteed by a promise that it could always be converted into valuable goods on demand Fiat Money - that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves.Fiat Money - that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves.

Measuring the Money Supply Measuring the Money Supply Monetary Aggregates M1M1 - currency and coin in circulation + checking deposits + traveler’s checks M2 = M1 + savings accounts + short- term CDs + money market accounts near moneys - Near monies pay interest while few items in M1 pay interest