 What is Money?  Why do we need it?

Money = 1. Purchase of goods and services 2. Personal worth: measurement of wealth and assets

Value of Money  Our money is backed by trust in the gov’t and the ability to collect taxes.  We no longer back money with gold or silver.  Too scarce  Our economy requires too much cash today

Sources of Money - examples

Money =  Medium of exchange for goods and services  Standard of value  Store of value  Store of wealth  Legal tender  Scarce ; limited in circulation

Characteristics of Money  Recognizable  Durable  Portable  Divisible  Acceptable  Limited Supply

What is considered money ?  Coins  Paper money  Demand deposits = checking accounts  Near money = liquid assets or bank savings accounts

Main Categories of Money  Money supply = all the available in the U.S. economy  M-1 ~ has the ability to be used as, or directly converted into cash  Currency = coins and paper money  Demand Deposits = checking deposits and traveler’s checks - Demand deposits are also called Near Money  M –2 ~ all the assets of M1 and additional assets that cannot be used as cash directly but can be converted to cash fairly easily  Currency (M1)  Demand deposits (M1)  Savings deposits  Money market deposits  CDs or time deposits

Additional Categories of Money  M-3  M-1& M-2  All large time deposits valued at $100,000 or more  L  M-1, M-2, M-3  Savings bonds,  short term treasury securities

Components of the Money Supply, 2003