Chapter 3- What is Money?

o Checks

An instruction to your bank to transfer money from your account

Money

Anything that is generally accepted as payment for goods or services or in the repayment of debts

• Income

Flow of earning per unit of time

• M2

M1+ Small denomination time deposits+ savings deposits and money market accounts + money market mutual fund shares

• M1

Most Liquid Assets Currency + Traveler's Checks + Demand Deposits + Other Checkable Deposits

o Electronic Payment

Online bill payment

o Fiat Money

Paper money decreed by the government as legal tender

• Wealth

The total collection of pieces of property that serve to store value

o Commodity Money

Valuable, easily standardized and divisible commodities (precious metals, cigarettes)

o Medium of Exchange

• Eliminated the trouble of finding a double coincidence of needs

o Unit of Account

• Used to measure value in the economy • Reduces transaction costs

o Store of Value

• Used to save purchasing power over time • Other assets also serve this function • Money is the most important liquid assets but loses value during inflation