1. What Is Money? Barter system Money
A system of exchange in which goods or services are traded directly for other goods or services
Money
Anything a society uses to purchase products, services, or resources
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2. The Functions of Money Medium of exchange Measure of value
Anything accepted as payment for products, services, and resources
Measure of value
A single standard or “yardstick” used to assign values to, and compare the values of, products, services, and resources
Store of value
A means of retaining and accumulating wealth
The Consumer Price Index measures the effects of inflation
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3. The Consumer Price Index and the Purchasing Power of the Consumer Dollar (Base Period 1982–1984 = 100)
Source: The U.S. Bureau of Labor Statistics website, September 30, 2008.
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4. The Consumer Price Index and the Purchasing Power of the Consumer Dollar (Base Period 1982–1984 = 100)
Source: The U.S. Bureau of Labor Statistics website, September 30, 2008.
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5. Important Characteristics of Money
Divisibility
Portability
Stability
Durability
Difficulty of counterfeiting
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6. The Supply of Money: M1 and M2
Demand deposit
An amount on deposit in a checking account
Time deposit
An amount on deposit in an interest-bearing savings account
Two main measures of the supply of money M1
Currency, demand deposits, and travelers checks M2
M1 plus savings accounts, certain money-market securities and small-denomination time deposits or certificates of deposit (CDs) of less than $100,000
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7. The Supply of Money
Source: The Federal Reserve website, accessed September 30, 2008.
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