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4. The Definition of Money The Functions of Money Measuring the Money Supply: M1 Measuring the Money Supply: M2 Other Measurements of the Money Supply Introducing Money The Monetary System > Introducing Money Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/economics

5. Money comes in three forms: commodity money, fiat money, and fiduciary money.Most modern monetary systems are based on fiat money. Commodity money derives its value from the commodity of which it is made, while fiat money has value only by the order of the government. Money functions as a medium of exchange, a unit of account, and a store of value. The Definition of Money Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/economics/textbooks/boundless-economics-textbook/the-monetary-system-27/introducing-money-114/the-definition-of- money-444-12541 Commodity Money View on Boundless.com The Monetary System > Introducing Money

6. The barter system has a number of limitations, including the double coincidence of wants, the absence of a common measure of value, indivisibility of certain goods, difficulty of deferred payments, and difficulty of storing wealth. Despite the numerous limitations, the barter system works well when currency is unstable or unavailable for conducting commerce. Money is durable, divisible, portable, liquid, and resistant to counterfeiting. Money serves as a medium of exchange, a unit of account, a store of value, and a standard of deferred payment. The Functions of Money Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/economics/textbooks/boundless-economics-textbook/the-monetary-system-27/introducing-money-114/the-functions-of- money-445-12542 Barter View on Boundless.com The Monetary System > Introducing Money

7. The Federal Reserve measures the money supply using three monetary aggregates: M1, M2, and M3. M1 is the narrowest measure of the money supply, including only money that can be spent directly. M2 is a broader measure, encompassing M1 and near monies. M3 includes M2 plus relatively less liquid near monies.However, this measure is no longer used in practice. Measuring the Money Supply: M1 Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/economics/textbooks/boundless-economics-textbook/the-monetary-system-27/introducing-money-114/measuring-the-money- supply-m1-446-12543 M1 View on Boundless.com The Monetary System > Introducing Money

8. M2 consists of all the components of M1 plus near-monies. Near monies are relatively-liquid financial assets that can be quickly converted into M1 money. Near monies include savings deposits, small time deposits, and money market mutual funds. Measuring the Money Supply: M2 Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/economics/textbooks/boundless-economics-textbook/the-monetary-system-27/introducing-money-114/measuring-the-money- supply-m2-447-12544 Federal Reserve View on Boundless.com The Monetary System > Introducing Money

9. M0 is a measure of all the physical currency and coinage in circulation in an economy. MB is a measure that captures all physical currency, coinage, and Federal Reserve deposits (special deposits that only banks can have at the Fed). The different forms of money in the government money supply statistics arise from the practice of fractional-reserve banking.Whenever a bank gives out a loan in a fractional-reserve banking system, a new sum of money is created, which makes up the non-M0 components in the M1-M3 statistics. Other Measurements of the Money Supply Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/economics/textbooks/boundless-economics-textbook/the-monetary-system-27/introducing-money-114/other-measurements- of-the-money-supply-448-12545 Euro Money Supply View on Boundless.com The Monetary System > Introducing Money

10. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

11. Key terms barter An exchange goods or services without involving money. Fiat money Money that is given value because those who use it believe it has value; the value is not derived from any inherent characteristic. M0 The amount of coin and banknotes in circulation. M1 The amount of cash in circulation plus the amount in bank checking accounts. M2 The amount of cash in circulation plus bank accounts, savings accounts and small deposits. MB The portion of the commercial banks' reserves that is maintained in accounts with their central bank plus the total currency circulating in the public. Free to share, print, make copies and changes. Get yours at www.boundless.com The Monetary System

12. Notes and Coins M0 is a measure of all physical currency including coinage. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "Set of coins and bills NobbiP." CC BY https://commons.wikimedia.org/wiki/File:Set_of_coins_and_bills_NobbiP.jpg View on Boundless.comCC BYhttps://commons.wikimedia.org/wiki/File:Set_of_coins_and_bills_NobbiP.jpgView on Boundless.com The Monetary System

13. Commodity Money Conch shells have been used as commodity money in the past.The value of commodity money is derived from the commodity out of which it is made. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "Conch shells." CC BY-SA https://commons.wikimedia.org/wiki/File:Conch_shells.jpg View on Boundless.comCC BY-SAhttps://commons.wikimedia.org/wiki/File:Conch_shells.jpgView on Boundless.com The Monetary System

14. M1 The M1 measure includes currency in the hands of the public and checkable deposits in commercial banks. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "USCurrency Federal Reserve." Public domain https://commons.wikimedia.org/wiki/File:USCurrency_Federal_Reserve.jpg View on Boundless.comPublic domainhttps://commons.wikimedia.org/wiki/File:USCurrency_Federal_Reserve.jpgView on Boundless.com The Monetary System

15. Barter In a barter system, individuals possessing something of value could exchange it for something else of similar or greater value. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "Olaus Magnus - On Trade Without Using Money." Public domain https://commons.wikimedia.org/wiki/File:Olaus_Magnus_- _On_Trade_Without_Using_Money.jpg View on Boundless.comPublic domainhttps://commons.wikimedia.org/wiki/File:Olaus_Magnus_- _On_Trade_Without_Using_Money.jpgView on Boundless.com The Monetary System

16. Euro Money Supply The measures of the money supply are all related, but the use of different measures may lead economists to different conclusions. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "Euro money supply Sept 1998 - Oct 2007." CC BY http://en.wikipedia.org/wiki/File:Euro_money_supply_Sept_1998_-_Oct_2007.jpg View on Boundless.comCC BYhttp://en.wikipedia.org/wiki/File:Euro_money_supply_Sept_1998_-_Oct_2007.jpgView on Boundless.com The Monetary System

17. Federal Reserve Historically, the Federal Reserve has measured the money supply using the aggregates of M1, M2, and M3.The M2 aggregate includes M1 plus near- monies. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "Federal Reserve." CC BY-SA https://commons.wikimedia.org/wiki/File:Federal_Reserve.jpg View on Boundless.comCC BY-SAhttps://commons.wikimedia.org/wiki/File:Federal_Reserve.jpgView on Boundless.com The Monetary System

18. Free to share, print, make copies and changes. Get yours at www.boundless.com The Monetary System The ability to sell goods and buy new ones represents which of the following functions of money? A) Store of Value B) Unit of Account C) None of these answers D) Medium of Exchange

19. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ The Monetary System The ability to sell goods and buy new ones represents which of the following functions of money? A) Store of Value B) Unit of Account C) None of these answers D) Medium of Exchange

20. Free to share, print, make copies and changes. Get yours at www.boundless.com The Monetary System Which of the following describes a barter system? A) A commodity, such as gold, is traded for other goods and services B) Goods and services are directly exchanged for other goods and services C) Exchange is facilitated entirely by physical currency rather than electronic means D) Exchange occurs only between individuals with similar goods or service

21. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ The Monetary System Which of the following describes a barter system? A) A commodity, such as gold, is traded for other goods and services B) Goods and services are directly exchanged for other goods and services C) Exchange is facilitated entirely by physical currency rather than electronic means D) Exchange occurs only between individuals with similar goods or service

22. Free to share, print, make copies and changes. Get yours at www.boundless.com The Monetary System What condition is necessary for trade to be effective in a barter system? A) A double coincidence of wants B) Goods must be adequately divisible C) All of these answers D) Individuals must be familiar with the value of the good to be bartered

23. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ The Monetary System What condition is necessary for trade to be effective in a barter system? A) A double coincidence of wants B) Goods must be adequately divisible C) All of these answers D) Individuals must be familiar with the value of the good to be bartered

24. Free to share, print, make copies and changes. Get yours at www.boundless.com The Monetary System Why do we use money rather than a barter system? A) Money is less susceptible to counterfeiting than bartered goods B) A medium of exchange, such as money, allows people to trade regardless of their specific posessions C) Money is a better measure of an individual's wealth than other goods and services D) Money has a variable utility, while the utility of other goods and services is constant

25. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ The Monetary System Why do we use money rather than a barter system? A) Money is less susceptible to counterfeiting than bartered goods B) A medium of exchange, such as money, allows people to trade regardless of their specific posessions C) Money is a better measure of an individual's wealth than other goods and services D) Money has a variable utility, while the utility of other goods and services is constant

26. Free to share, print, make copies and changes. Get yours at www.boundless.com The Monetary System Which of the following is a characteristic of money? A) All of these answers B) Divisibility C) Transportability D) Resistance to counterfeiting

27. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ The Monetary System Which of the following is a characteristic of money? A) All of these answers B) Divisibility C) Transportability D) Resistance to counterfeiting

28. Free to share, print, make copies and changes. Get yours at www.boundless.com The Monetary System Which function of money makes it ideal for the settlement of debt? A) Unit of Account B) Store of Value C) Medium of Exchange D) Standard of deferred payment

29. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ The Monetary System Which function of money makes it ideal for the settlement of debt? A) Unit of Account B) Store of Value C) Medium of Exchange D) Standard of deferred payment

30. Free to share, print, make copies and changes. Get yours at www.boundless.com The Monetary System M1 includes: A) Currency and checkable deposits B) Savings accounts and checkable deposits C) Currency and savings accounts D) Currency and mutual funds

31. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ The Monetary System M1 includes: A) Currency and checkable deposits B) Savings accounts and checkable deposits C) Currency and savings accounts D) Currency and mutual funds

32. Free to share, print, make copies and changes. Get yours at www.boundless.com The Monetary System Which of the following is NOT included in M2? A) Checkable deposits B) Savings deposits C) Time deposits larger than $100,000 D) Time deposits smaller than $100,000

33. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ The Monetary System Which of the following is NOT included in M2? A) Checkable deposits B) Savings deposits C) Time deposits larger than $100,000 D) Time deposits smaller than $100,000

34. Free to share, print, make copies and changes. Get yours at www.boundless.com The Monetary System M0 measures which of the following: A) All physical currency, coinage, and federal reserve notes. B) All physical currency, coinage, and checkable deposits. C) All physical currency, coinage, checkable deposits, and savings accounts. D) All physical currency and coinage.

35. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ The Monetary System M0 measures which of the following: A) All physical currency, coinage, and federal reserve notes. B) All physical currency, coinage, and checkable deposits. C) All physical currency, coinage, checkable deposits, and savings accounts. D) All physical currency and coinage.

36. Attribution Wikipedia. "Money." CC BY-SA 3.0 http://en.wikipedia.org/wiki/MoneyCC BY-SA 3.0http://en.wikipedia.org/wiki/Money Wikispaces. CC BY-SA http://economicsforyou.wikispaces.com/file/detail/8+(+Money+%2526+Banking).docxCC BY-SAhttp://economicsforyou.wikispaces.com/file/detail/8+(+Money+%2526+Banking).docx Wikipedia. "Money." CC BY-SA 3.0 https://en.wikipedia.org/wiki/MoneyCC BY-SA 3.0https://en.wikipedia.org/wiki/Money Wikipedia. "Money." CC BY-SA 3.0 https://en.wikipedia.org/wiki/MoneyCC BY-SA 3.0https://en.wikipedia.org/wiki/Money Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//economics/definition/fiat-moneyCC BY-SA 3.0http://www.boundless.com//economics/definition/fiat-money Wikibooks. "Introduction to Economics." CC BY-SA 3.0 https://en.wikibooks.org/wiki/Introduction_to_Economics#MoneyCC BY-SA 3.0https://en.wikibooks.org/wiki/Introduction_to_Economics#Money Wikibooks. "Principles of Economics/Money Supply." CC BY-SA 3.0 https://en.wikibooks.org/wiki/Principles_of_Economics/Money_Supply#MoneyCC BY-SA 3.0 https://en.wikibooks.org/wiki/Principles_of_Economics/Money_Supply#Money Wikipedia. "Barter." CC BY-SA 3.0 https://en.wikipedia.org/wiki/BarterCC BY-SA 3.0https://en.wikipedia.org/wiki/Barter Wikipedia. "Barter." CC BY-SA 3.0 https://en.wikipedia.org/wiki/BarterCC BY-SA 3.0https://en.wikipedia.org/wiki/Barter Wikipedia. "History of money." CC BY-SA 3.0 https://en.wikipedia.org/wiki/History_of_moneyCC BY-SA 3.0https://en.wikipedia.org/wiki/History_of_money Wikispaces. "money-credit - home." CC BY-SA http://money-credit.wikispaces.com/CC BY-SAhttp://money-credit.wikispaces.com/ Wiktionary. "barter." CC BY-SA 3.0 http://en.wiktionary.org/wiki/barterCC BY-SA 3.0http://en.wiktionary.org/wiki/barter Wikibooks. "Principles of Finance/Section 1/Chapter/Financial Markets and Institutions/Federal Reserve." CC BY-SA 3.0 http://en.wikibooks.org/wiki/Principles_of_Finance/Section_1/Chapter/Financial_Markets_and_Institutions/Federal_Reserve#Mo netary_policyCC BY-SA 3.0 http://en.wikibooks.org/wiki/Principles_of_Finance/Section_1/Chapter/Financial_Markets_and_Institutions/Federal_Reserve#Mo netary_policy Wikipedia. "Money supply." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Money_supplyCC BY-SA 3.0http://en.wikipedia.org/wiki/Money_supply Wikispaces. "Moeller - Unit Four." CC BY-SA http://moeller.wikispaces.com/Unit+FourCC BY-SAhttp://moeller.wikispaces.com/Unit+Four Wikispaces. "TradingDiary - Money." CC BY-SA http://tradingdiary.wikispaces.com/MoneyCC BY-SAhttp://tradingdiary.wikispaces.com/Money Wiktionary. "M1." CC BY-SA 3.0 http://en.wiktionary.org/wiki/M1CC BY-SA 3.0http://en.wiktionary.org/wiki/M1 Free to share, print, make copies and changes. Get yours at www.boundless.com The Monetary System

37. Wikipedia. "Money supply." CC BY-SA 3.0 https://en.wikipedia.org/wiki/Money_supplyCC BY-SA 3.0https://en.wikipedia.org/wiki/Money_supply Wikipedia. "M2 (economics)." CC BY-SA 3.0 http://en.wikipedia.org/wiki/M2_(economics)#Empirical_measuresCC BY-SA 3.0http://en.wikipedia.org/wiki/M2_(economics)#Empirical_measures Wikipedia. "M2 (economics)." CC BY-SA 3.0 http://en.wikipedia.org/wiki/M2_(economics)#Empirical_measuresCC BY-SA 3.0http://en.wikipedia.org/wiki/M2_(economics)#Empirical_measures Wikispaces. "Moeller - Unit Four." CC BY-SA http://moeller.wikispaces.com/Unit+FourCC BY-SAhttp://moeller.wikispaces.com/Unit+Four Wiktionary. "M2." CC BY-SA 3.0 http://en.wiktionary.org/wiki/M2CC BY-SA 3.0http://en.wiktionary.org/wiki/M2 Wikipedia. "Fractional reserve banking." CC BY-SA 3.0 https://en.wikipedia.org/wiki/Fractional_reserve_bankingCC BY-SA 3.0https://en.wikipedia.org/wiki/Fractional_reserve_banking Wikipedia. "Money supply." CC BY-SA 3.0 https://en.wikipedia.org/wiki/Money_supplyCC BY-SA 3.0https://en.wikipedia.org/wiki/Money_supply Wikipedia. "Money supply." CC BY-SA 3.0 https://en.wikipedia.org/wiki/Money_supplyCC BY-SA 3.0https://en.wikipedia.org/wiki/Money_supply Wikipedia. "Money supply." CC BY-SA 3.0 https://en.wikipedia.org/wiki/Money_supplyCC BY-SA 3.0https://en.wikipedia.org/wiki/Money_supply Wikipedia. "MB." CC BY-SA 3.0 http://en.wikipedia.org/wiki/MBCC BY-SA 3.0http://en.wikipedia.org/wiki/MB Wiktionary. "M0." CC BY-SA 3.0 http://en.wiktionary.org/wiki/M0CC BY-SA 3.0http://en.wiktionary.org/wiki/M0 Free to share, print, make copies and changes. Get yours at www.boundless.com The Monetary System