March 20, 2017

Who is on the...

• $100 - Benjamin Franklin
• $50 - Grant
• $20 - Jackson
• $10 - Hamilton
• $5 - Lincoln
• $2 - Jefferson
• ¢50 - JFK
• ¢10 - FDR
• $1,000 - Cleveland
• $100,000 - Wilson

Why do we use money? What would happen if we didn't use money?

• The barter system: goods and services are traded directly. There is no money exchanged.

What is money?

• Money is anything that is generally accepted in payment for goods and services
• Money is not the same as wealth or income
• Wealth is the total collection of assets that store value
• Income is a flow of earnings per unit of time

Money can be used as a

• 1) medium of exchange - buy goods and services
• 2) unit of account - measuring the value of goods and services
• 3) store of value

3 types of money

• Representative money - money that represents something of value: IOU’s
• Commodity money - something that performs the function of money and has alternative uses: salt, gold, silver, cigarettes
• Fiat money - money because the government says so: paper money, coins

6 characteristics of money

• 1) durability - just wrinkles
• 2) portability
• 3) visibility- can easily break the denomination down
• 4) uniformity
• 5) limited supply
• 6) acceptability

3 types of money supply

• Liquidity - ease with which an asset can be accessed and 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, this is the money supply.
• M2 (medium liquidity) - M1 plus savings deposits (money market accounts), time deposits (CDs = (certificates of deposit), and Mutual funds
• M3 (low liquidity) - M2 plus time deposits above $100K