1. Chapter 10, Section 1 Money and Banking Three Uses of money. Six characteristics of money. Kinds of money.

2. 3 Uses of Money Medium of exchange-money is accepted as payment for that g/s. This use overcomes the issue of bartering. Unit of account- when money is used to compare the value (or expense) of a g/s. This helps buyers determine the best deal. Store of value- describes how well a form of money holds its value. This is why inflation must be controlled.

3. Characteristics of Money Durability Portability Divisibility Uniformity- Money is easily recognizable, and its value is generally understood. Limited Supply Acceptability- Money must be accepted throughout a society as payment (Legal Tender)

4. Kinds of Money Commodity Money- when a good is used in an exchange like money. Ex: salt, gold, cattle, tobacco, rum, cotton. Representative money- money that has no actual value, except the promise that it can be exchanged for something of value. Ex: IOUs, or historic currencies backed by gold or silver Fiat money- money by government decree which must be accepted as payment for g/s’s.

5. M1 and M2 M1- money that has liquidity, which means it can be used as, or converted to cash. Ex: Cash, traveler’s checks, and checking accounts (also called demand deposits) M2- includes all M1 forms of money + less liquid forms like savings accounts, Money market accounts, and CD’s (certificate of deposit)