Unit 4; Day 1 Notes

Money
   Uses of money
      Medium of exchange- Trade/Barter
      Unit of account- Establishes economic worth in exchange process
      Store of value- Money holds its value over a period of time whereas products may not
   Types of money
      Commodity money- Gets its value from the type of material from which it is made. Ex.             Silver/Gold coins
      Representative money- Paper money backed by something tangible that gives it value. Ex. IOU
      Fiat money- Money because the government says so.
      Characteristics of money
      Durable
      Portable
      Scarce
      Divisible
      Acceptable
      Uniform
      Money Supply
      M1 Money-75% of all money, most liquid (easy to convert to cash)
      Currency- Coins, cash
      Checkable deposits- Demand deposits/Checking accounts
      Traveler’s Checks
      M2 Money= M1 Money + Savings accounts+ Money Market Accounts + Deposits held by banks outside US.
      M3 Money= M2 Money+ Certificates of Deposits(CDs)

increase money supply > Decreases interest rate > Investment increases >AD increases
Decrease money supply > increase interest rate > Investment decreases > AD decreases