Types of Money Review

Types of Money Review - based on the interest rates and is...

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MONEY BANKS AND THE FEDERAL RESERVE SYSTEM Money – Assets (something of value) that people are willing to except for goods and services and debt payment (says right on the bill – “Legal tender for all debts both public and private” 4 Functions: 1) Medium of exchange – vendors willing to accept for goods 2) Unit of Account – standardizes methods of trade (instead of exchanging two pairs of socks for a cheeseburger and a soda, the meal is exchanged for the equivalent in dollars of two pairs of socks 3) Store of value – you do not need to spend money you make from working right away, you can save it to be used whenever you desire, it will lose value over time with changes in the interest rates, though 4) Standard of deferred payment – A future payment plan can be defined for a sale,
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Unformatted text preview: based on the interest rates and is facilitated by money’s ability to store value TYPES OF MONEY Commodity money – an object that meets these four criteria, but is not actually paper currency (gold, jewels, by weight) US used to issue paper money, which could be exchanged for gold <gold standard> Fiat Money – paper money, has no value for anything except as money – issued and certified by the federal reserve Money Supply(M1) “narrow” definition Sum of: 1) paper money in circulation 2)value of checking account balances 3) value of traveler’s checks M2 “broader” definition -- everything in M1 plus balances in short-term savings (savings, CDs, money markets) Banks...
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This document was uploaded on 10/08/2008.

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