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Chapter 3
What Is Money?
Meaning of Money
• Money (money supply)—anything that is generally accepted in payment for goods or services or in the repayment of debts (coins, bill, checks).
• Wealth—the total collection of pieces of property that serve to store value (checking account, stock, bonds, cars, houses…)
• Income—flow of earnings per unit Copyright © 2007 Pearson Addison-Wesley.
All rights reserved. 3-2
Functions of Money 3 functions:
1/ Medium of Exchange—promotes economic efficiency by minimizing the time spent in exchanging goods and services
Must be easily standardized Must be widely accepted
Must be divisible
Must be easy to carry
Must not deteriorate quickly
2/ Unit of Account—used to measure value in
the economy: we measure the value of goods & services in terms of money.
3/ Store of Value— power - used to save purchasing power; most liquid of all assets (that why we want to
keep money) but loses value during inflation All rights reserved. 3-3
Evolution of the Payments System
• Commodity Money: money made up of precious metal such as gold or silver or another valuable commodity.
• Fiat Money: paper currency. • Checks
• Electronic Payment • E-Money
Copyright © 2007 Pearson Addison-Wesley.
All rights reserved. 3-4
Copyright © 2007 Pearson Addison-Wesley.
All rights reserved. 3-5
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