Unit 4: Money 3/7/16

Money has three uses:

• A medium of exchange used for trade and barter
• A unit of account or the economic worth in the exchange process
• a store of value that people can hold to keep value over time

There are also three types of money 

1. Commodity money: the value of the money is determined by the material of the currency: gold and silver coins. This type of money is limited.
2. Representative money: this type of money represents a tangible good that has value, like dollars that can be exchanged for gold. This type is limited and usually more portable
3. Fiat money: This type of money holds value solely because the government "says so" . This type of money is unlimited and portable.

Money also has six characteristics

1. Easy to carry
2.  durable
3. Scarce
4. Divisible
5. Acceptable 
6. Uniform

The Money Supply is split into the levels of liquidity or how easy it is to turn into cash; M1, M2, and M3. M1 is the most liquid and includes all currency in circulation, traveler's check, and checkable and demand deposits. M2 is less liquid than M1 and includes M1 + Savings accounts. M3 is the least liquid and includes M2 + certificates of deposits.