Anything that commonly accepted as a payment for goods and services

1. Commodity Money- has value beyond its use as money (ie precious metals, cigarettes in prison)

2. Fiat Money- no intrinsic value… Has value only because the government says so (Cash is worthless in and of itself, or Justin Bieber)

1. Medium of Exchange

2. Unit of Account

3. Store of Value

Any item sellers generally accept and buyers generally use to pay for a good or service

Standard unit in which prices can be stated and the value of goods/services can be compared

Society uses monetary unitsU.S. dollars, Euros, Yen, etc.

Yardstick for measuring worth of goods and services

Asset set aside for future useEnables people to transfer

purchasing power from now to the futureWhen inflation is low or non

existent; risk-free storage of wealth

Assets that are quickly converted to cash

The more liquid an investment, the faster you can turn it into cash

Liquid = cash, checks, savings accounts

Non-liquid = 401k, IRAs, Real Estate

M1- Narrowest Definition of moneyM1 = coins and paper money +

checkable deposits + traveler’s checks

Includes all Checkable Deposits (accounts that checks can be drawn from)

M1 + savings deposits + small time deposits (less than $100,000 with a fixed maturity date ex CDs) + Eurodollar deposits (overnight deposits)

M2 + large time deposits + Eurodollar time deposits + other less liquid assets

Commercial Banks- provide short-term financial capital to businesses and finance consumer purchases of automobiles and other durable goods

Thrift Institutions- Savings and Loans (S&Ls), mutual savings banks, and credit unionsMostly use these funds to finance mortgages

Roughly $13.9 trillion in US currency circulating throughout the world

Divide 1 by the price level expressed as an index number (in hundreths)

Ex. Price index is 120 (1.20)

V = 1/1.2V= .833