Transcript
ChapterChapter
Money & BankingMoney & Banking
14
Objectives:
list the types of moneyidentify the characteristics of moneylist the 3 basic ways economists measure
the money supplycalculate how the money supply grows
using the simple money multiplier
Types of MoneyMoney: item used to buy goods and services
Commodity Money: money with an alternative use
Representative Money: money backed by something valuable
Fiat Money: money that is valuable because the Government backs it
Legal Tender: paper money and coins used within a nation
Roles of Money:
• Medium of Exchange: way of buying stuff
• Store of Value: holds the same value over time
• Unit of Account: consistent way of understanding prices
What makes Money Valuable?
• Widely Accepted
• Holds Value
• Durable
• Portable
• Divisible
The Money Supply
Type of Money Definition Example
M1 Transactions money-liquid assets
Currency in circulation and traveler’s checks
M2 Broader measure M1 + savings accounts
M3 Even less liquid M1 + M2 + retirement accounts and other assets that are difficult to convert to cash
How Banks Work
Banks use your deposited money to make loans
Simple Money Multiplier:
SMM Example:
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