(c) Credit Unions: Share Draft Accounts. (d) Demand deposits at Mutual Savings Banks. B. M2. 1. A broader definition of the money supply that includes...
Money A. Definition 1. Can be anything that is generally accepted in payment for goods and services. 2. Most liquid asset (an asset that can easily be exchanged for goods and services) 3. Before there was money: barter a. trading one item for another b. problem: double coincidence of wants B. Functions of Money 1. Medium of Exchange a. anything that is used to determine value during the exchange of goods and services 2. Measure of Value (Unit of Account) a. means for comparing the values of goods and services 3. Store of Value a. money keeps its value if you decide to hold on to or store instead of spending it 4. Standard of Deferred Payment a. money is an accepted way to settle a dept C. Characteristics of Money 1. Must be durable 2. Must have acceptability 3. Must be portable 4. Must have divisibility 5. Must have stability of value and uniformity 6. Must be in limited supply D. Sources of Money’s Value 1. Commodity Money a. objects that have value in and of themselves and that are also used as money b. simple economies c. salt, cattle, precious stones, agricultural crops 2. Representative Money a. makes use of objects that have value because the holder can exchange them for something else of value 3. Fiat Money a. money that is declared money by government decree or “fiat” b. monetary system is based on trust c. Legal Tender (1) government has said that fiat money must be accepted for all debts, public and private (2) paper money have value because the United States Government has decreed that is legal tender
II.
Money in Circulation A. M1 1. Financial assets that are immediately available for spending 2. M1 = currency + demand deposits + other checkable accounts + travelers checks a. Currency (1) includes coins and paper money
b. Travelers Checks (1) outstanding U.S. dollar – denominated travelers checks issued by nonbank institutions c. Demand Deposits (1) checking account deposits at a commercial bank d. Other Checkable Deposits (1) accounts at financial institutions that pay interest and give the depositor check writing privileges (a) Savings and Loans: Negotiable Orders of Withdrawal (NOW Accounts) (b) Automatic Transfer System (ATS Accounts) (c) Credit Unions: Share Draft Accounts (d) Demand deposits at Mutual Savings Banks B. M2 1. A broader definition of the money supply that includes money in somewhat less liquid form 2. M2 = M1 + overnight repurchase agreement and overnight Eurodollar deposits + money market deposit accounts + savings deposits + small denomination time deposits + individual money market mutual fund balances C. M3 1. M3 = M2 + large time deposits + term repurchase agreements + term Eurodollar deposits + institution-only money market mutual fund balances D. L: (Liquidity) 1. L = M3 + securities that are within 18 months of maturity E. Near Money 1. Savings accounts and time deposits easily can be converted into cash or checking accounts F. Electronic Banking 1. Automated Teller Machines (ATM) 2. Debit Cards a. used to withdraw money at an ATM or purchase merchandise at a store (money is deducted from your checking account)
