1. Money Makes the World Go ‘Round

2. What is money?
With a partner, come up with a definition of money

3. Money is… 1) A medium of exchange 2) A unit of account
Money is acceptable as a form of payment
2) A unit of account
Society uses money as a yardstick for measuring the relative worth of a wide variety of goods
3) A store of value
Enables people to transfer purchasing power from the present to the future
People save their money so they can buy things later

4. Money
Definition = M1
M1 consists of currency (coins and paper money) and all deposits in a bank

5. History
Since modern money is the paper form of bartering for goods based on their value…
Historically, anything could be used as money, including:
Livestock
Grains
Beads
Stones
Whale’s teeth/ivory
Furs
Cowry shells
Precious metals
Salt
Spices

6. Currency Currency is broken down into two items:
1) Token money = coins
The intrinsic value of the coin is worth more than the metal itself
2) Federal Reserve Notes = paper money issued with Congress’ authorization
Paper money consists of 46% of the U.S. economy M1 supply

7. Checkable Deposits The largest component of the M1 supply
Deposits made by check placed into a bank account
Recap: M1 = currency + checkable deposits

8. M2
M2 = M1 + savings deposits (including MMDAs) + small time deposits + MMMFs
Three categories:
1) Savings deposits and a money market deposit account
MMDA = an interest-bearing account that pays higher interest than a typical savings account. Acts like a checking and a savings account.
2) Money Market mutual funds
An investment whose objective is to earn interest for shareholders
An easy place for people to invest in easily accessible cash-equivalent assets
3) Small (less than $100,000) time deposits
Funds from time deposits become available when they mature, and there are withdrawal limitations

9. M3 M3 = M2 + large time deposits
Large time deposits = $100,000 or more

10. The Ascent of Money
The Ascent of Money