1. Alomar_111_191 Money and Banking Chapter 13 Money and Banking

2. Alomar_111_19 2 What is money? Money is what money does Anything that performs the functions of money is money What are the functions of money? 1. Medium of exchange 2. Unit of account 3. Store of value

3. Alomar_111_19 3 1. Medium of exchange Used to buy goods and services Accepted in payments Barter system Convenient way of exchange: specialization

4. Alomar_111_19 4 2. Unit of account Monetary units (KD) to measure the relative worth of goods and services The price of each good and services is stated in monetary terms Enable buyers to compare between a verity of goods and services Debt, GDP, taxes

5. Alomar_111_19 5 3. Store of value Transfer purchasing power from the present to the future Savings Best store of value in short terms Efficient liquid asset Liquidity: transformation of an asset into goods and services Inflation?

6. Alomar_111_19 6 Supply of Money: Measuring Money in the Economy M1 = Currency + Checkable deposits Currency: Coins + paper money M2= M1 + Saving deposits + Small time deposits + Money market mutual funds M3 = M2 + large time deposits

7. Alomar_111_19 7 Value of Money 1. Acceptability 2. Legal Tender 3. Relative scarcity

8. Alomar_111_19 8 Money and Prices What is the relationship between money (quantity of money M1, M2, M3…) and the price level in the economy?