Unit four money

1 Unit of money

• Medium of exchange-trade or barter
• unit of account-establishes economic worth
• store of value-money holds its value over a period of time

2 Type of money

• commodity-gets value from material that it is made of ( gold and silver coins)
• representative money-backed up by something tangible
• Fiat money-its money because the government said it was so

3 characteristics of money

• Durability-last through many transactions
• portability-able to transport it easily
• uniformity-Even (they look alike)
• divisibility-can divide bills into smaller units
• scarcity-might not have money at that time
• acceptability- accepted everywhere

M1 Money-75% of money in circulation

• Liquid-easily converted to cash
• consist of

               -currency-cash/coins
                -checkable/demand deposits-checking accounts
                -travelers checks

M2 Money-25% of money  in circulation

• consist of:

• -savings accounts
• market money accounts
• CD-certification of deposit 
• M1 money and deposits held by banks outside the U.S

• Assets=liabilities+net worth
• bank deposits are subjected to reserve requirement
• reserve ration=commercial banks requires reserves/commercial banks checkable deposits liabilities
• excess reserves= Actual reserves- requires reserves
• banks create money by lending excess reserves and destroy it by loan repayment. Purchasing bonds also creates money.