There is $665 billion in
currency [notes & coins].
$37 million in notes is
printed each day.
Money and Banking
“Money is the only commodity that is good for
nothing but to be gotten rid of. It will not feed you,
cloth you, shelter you, or amuse you unless you
spend it or invest it. People will do almost
anything for money but money will do nothing
(by itself) for people.
FUNCTIONS OF MONEY
1. Medium of Exchange;
It is used for the buying and selling of goods
and services.
Money enables us to avoid the “coincidence of
wants” problem associated in a barter economy.
2. Unit of Account;
We use money as a yardstick for
measuring the relative worth of goods,
services, and resources.
Example:
A new car selling for $32,000, is worth
32,000 monetary units.
A $2 item is twice as valuable as a $1 item.
“She’s fast.”
Here’s $3.29
for one gallon.
$3.29
• Posting the monetary value of G/S require businesses to
compete for your dollars. This leads to cheaper prices.
• Posted monetary values also make economic exchanges
are faster and easier; because we do not have to guess or
haggle over the value.
Greek Coin
2,500 years old
3. Store of Value;
the wealth of money can be stored
longer than the wealth of commodities. Inflation is the only
thing that can destroy the wealth of money.
Types of Money
1. Commodity Money; something that performs
the function of money but also has intrinsic value
by itself.
– Milk, meat, tobacco, corn
2. Representative money;
paper currency backed by
something of intrinsic value.
- $35 of currency could be
redeemed for $35 worth of gold
or silver.
=
3. Fiat Money: paper currency backed by
nothing of intrinsic value other than the
government command that it will be used
as a medium of exchange.
– Federal Reserve Notes & coins (token money).
And pay me with
the paper I’ve
printed.
DEFINITIONS OF MONEY
M1 Money: is the narrowest definition
M1
of the U.S. money supply. It includes;
•Currency and coins in the hands of
the public.
• Checkable deposits. The largest part.
$1,100
Billion
(2000)
2%
46%
52%
M2 Money: is called “nearmonies” because it contains very
liquid assets that do not function
directly as a medium of exchange,
but can be converted into
currency easily.
M2 M1
$1,100
billion
• Savings accounts
• Money market accounts
• Timed deposits
• Money Market Mutual Funds
$5,899
billion
M3 Money: includes all large
($100,000 or more) time deposits M3 M2 M1
also called bank debt.
=
$1,236
billion
$5,899
billion
$8,595
billions
WHAT ABOUT CREDIT CARDS?
Are They Money?
No they are not “plastic money.” They are simply a means of
obtaining a short-term loan from the bank that issued the
card. Credit cards are merely a means of deferring payment
till the future.
WHAT ABOUT Debit CARDS?
Are They Money?
Debit cards are considered M1 money; because
purchases are deducted from a checking account.
They serve as a plastic check.
Debit Card
The End