Chapter 3 What Is Money? Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 3-2 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 of time Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 3-3 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 Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 3-4 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. 3-5 Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 3-6 How Reliable are the Money Data? • Revisions are issued because:  Small depository institutions report infrequently  Adjustments must be made for seasonal variation • We probably should not pay much attention to short-run movements in the money supply numbers, but should be concerned only with longer-run movements Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 3-7 Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 3-8 . Chapter 3 What Is Money? Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 3-2 Meaning of Money • Money (money supply)—anything that is generally. 3-5 Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 3-6 How Reliable are the Money Data? • Revisions are issued because:  Small depository