Вы находитесь на странице: 1из 33

Chapter 2.

Money & the Payments System

meaning of money functions of money forms of money measuring money

I. The Meaning of Money

anything commonly excepted


in exchange for goods/services many objects throughout history

examples

livestock metals cigarettes grain shells

money, income, & wealth

money
what is accepted as payment income earnings during time period (year) wealth accumulated assets at pt. in time

money, wealth are STOCKS


amount at a point in time income is a FLOW amount during a time period

examples

I own $2 million in diamonds. period.


I am wealthy I have no money

I win $25 million in lottery I put it under my bed I quit my job


I am weathly I have a lot of money my income is zero

software engineer earnings $100,000/yr blows it all, every paycheck


high income no wealth

II. Functions of Money

money is a means of payments (medium of exchange)


-- accepted as payment for

goods and services -- main function of money

without money,

barter for stuff


-- need double coincidence of wants -- inefficient: more time shopping, less time producing

example

I have exam 2,
want to trade it for soda

You have to want the exam & be willing to give up soda AND I have to want the soda & be willing to give up exam

double coincidence of wants

to act as money, must be

measurable divisible widely accepted durable

money is a unit of account


-- money is used to measure value

if something costs $5,


not that valuable if something costs $500, thats valuable

money is a store of value


-- use money to save,

accumulate wealth, buy stuff later

-- money is liquid asset

money is NOT always


a good store of value -- political instability -- poor economy -- high inflation

example
Historically, the dollar has been a good store of value 70% of U.S. currency is held outside the U.S but if $ continues to fall, this could change

III. Forms of Money

commodity money
has its own value as a good -- gold & silver coins

fiat money
-- no value other than fact that its accepted in exchange for goods and services

U.S. money is fiat money!

NOT backed by gold since 1934 coins do not contain silver

fiat money is more efficient

commodity money has


opportunity cost: you could use it for something else

debit or credit cards?

NOT money payment mechanisms that access


money

IV. Measuring Money

Money aggregates
amount of cash BUT other forms of money too

M1
= currency in circulation

+ demand deposits + checkable deposits + travelers checks $1.4 trillion

M2
= M1 + savings deposits + small time deposits + retail money market deposits $7.3 trillion

Comparing measures

get larger
M1 < M2 add less liquid assets to larger measures

Components of M1
23%

currency traveler's checks demand deposits other checkable

48% 28% 1%

money market 19%

Components of M2
M1 22%

savings 39%

small CDs 20%

Which measure is best?

move together in general BUT behavior can vary in short-term M2 most watched

Growth Rates in Monetary Aggregates

Money Growth and Inflation

Вам также может понравиться