Unit 4: Why do we use money?

3/20/17

• The barter System- goods and services that are traded directly. There is no money exchanged
• Money - Anything that is generally excepted i payment for goods or services.
• Wealth- total collection of assets that store value.
• Income- Flow of earnings per unit of time.
• Money can be used as...

1. A medium of exchange
   
2. Unit of account
3. Store of value 

• 3 Types of Money

1. Representative Money- Represents something of value( "Iou's")
2. Commodity Money- Has value within itself Ex; Gold, Salt
3. Fiat Money- Money because the government says so.

• Characteristics of Money

1. Durability
2. Portability
3. Uniformity
4. Divisibility
5. Limited supply
6. Acceptability

• 3 Types of Money

- Liquidity- ease with which an asset can be accepted or converted into cash (liquidized)
- M1 (High Liquidity)- Coins, currency, and checkable deposits( personal and corporate checking accounts which are the largest component of M1). AKA demand deposits. In general is Money supply.
- M2 ( Medium Liquididty)- M1 plus savings deposits ( Money marked accounts) Time deposits (C'Ds= certificates of deposits) and mutual funds below $100K
- M3 (Low Liquidity)-M2 plus deposits above $100K