Liquidity – the relative ease and speed with which an asset can be converted into a medium of exchange. Money is the most liquid asset.History of the Payments SystemMonetary AggregatesM1M2What is money?Money is anything that is generally acceptedin payment for goods and services or in the repayment of debts.Income – a flow of earnings per unit of time. You must attach a time period for this measure. “Janet earns $200.00.”Wealth – The total collection of pieces of property that serve to store value. Wealth is a stock variable, i.e. measured at a point in time.Which of the following statements uses the term “money” correctly?1. Jill earns a lot of money at her new job. She is making $200.00.2. Jerry Jones has a lot of money.3. The textbook for this class cost a lot of money.Functions of MoneyMedium of exchange – avoids the problem of the double coincidence of wants. Money lowers transactions costs.Unit of account – used to measure value in the economy.Store of value – way of saving for future expenses. Characteristics of money1. easily standardized2. widely accepted3. divisible4. portable5. not deteriorate quicklyLiquidity – the relative ease and speed with which an asset can be converted into a medium of exchange. Money is the most liquid asset.History of the Payments SystemBarter – goods and services are exchanged directly for other goods and services.Commodity money – money that has a purpose other than just as money. Precious metals, coins made from precious metals.Fiat money – money that is intrinsically worthless. Paper currency decreed by governments as legal tender but that is not convertible into coins or precious metals.Checks – an instruction from you to your bank transfer of funds from your account to someone else's account when the check is presented.E-payments and E-money – transfer of funds electronically without the use of paper.Will the U.S. become a cashless society?Measuring MoneyThe Federal Reserve is responsible for measuring the money supply and reports on the monetary aggregates every week.Monetary AggregatesM1- Currency- Traveler’s Checks- Demand Deposits- Other checkable depositsM2- M1- Small-denomination time deposits- Savings deposits and money market deposit accounts- Money market mutual fund sharesLook at figure 1 on page 61. Do the two measures of money always move in the same direction?What does this mean for
View Full Document
Unlocking...