chapter 2- What is money. Types of money

central banks

-make loans to private banks. -clear many of the checks written in an economy and process electronic payments -monetary policy(managing the money supply) -emergency lending -financial regulation

Money serves 3 functions

1. Medium of Exchange-People use money to buy goods and services 2. Unit of Account-prices and goods and services are quoted in terms of money 3. Store of value-people can hold wealth in the forms of money

2 types of money

1. commodity-exists when a good that was intrinsic value serves as the medium of exchange ex. seashells, animal skin, tobacco, metals 2. Fiat Money- has no intrinsic value but has been declared money by the government decree of fiat ex. cannot be redeemed for anything

M2

M1+ savings deposits+small time deposits+Retail money-market mutual funds

Monetary policy

is the management of the money supply

money supply

is the total amount of money in the economy

dollarization

is the use of another country currency to replace the domestic currency

M1

primary measure of the money supply Include -Currency -Checking deposits -Traveler's checks