1. Mediums of Exchange: can trade or barter with the money
2. Unit of Account: establishes economic worth
3. Store Of Value: money holds its value over a period of time
TYPES OF MONEY
1. Commodity: gets value from the material in which it is made (gold and silver coins)
2. Representative Money: paper money that is backed by something tangible
3. Fiat money: Money because the government says so
CHARACTERISTICS OF MONEY
1 Durability: Money lasts through many transactions b/c it is durable (ex: Wash money accidentally, still useable)
2. Portability: Can transport money in many forms (Wallet, purse, bosoms - whatever floats your boat)
3. Uniformity: Even, all money looks alike.
4. Divisiblity: Can make change in various ways (2 5s to make a 10, or 10 ones)
5. Scarcity: Not having that money at that time (Clerk must get change from a different register)
5. Accepibility: Will be accepted all over the states
M1 MONEY: (more liquid = easier to convert to cash, 75%)
-Cash & coins.
- Checkable/Demand Deposits: (checking accounts)
- Traveler's check: Must sign twice, with two signatures and checked with driver's license (Obviously: used for traveling)
M2 MONEY: (25% of money in circulation)
- Savings Account
- Money market accounts
- C.Ds (certificate of deposits)
- Deposits held by banks outside of the U.S
- + M1 money
How banks & Thrifts(Savings & Loans institution) create money:
- Assets (own) = Liabilities (Owed) + Net Worth (balance sheet)
- Bank deposits are subject to a reserve requirement
Reserve ratio = Commercial bank's required reserves/Commercial bank's checkable-deposit liabilitiesimportant issue:
1. Excess reserves = Actual reserves - Required reserves
(Assume 20% reserve requirement)
((110, 000 (checkable deposits) - 20,000 = $90, 000))
*Banks create money by:
1. Lending excess reserves & destroy it by loan payment
2. Purchasing bonds from the public also creates money
Like the organization and layout. The pictures do help in giving a better image of what is going on. I would just recommend adding videos for others who might not fully grasp the concept.
ReplyDeleteI agree with Francisco. And to piggy back on what he said, you might also want to add more examples as well as to better explain each types, characteristic, etc to better reiterate the topic, since it was a challenging unit to understand. Other wise good job! It is simple to read and I love the background.:)
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