Money and BankingMoney and Banking

There is $665$665 billionbillion in currency [notes & coins].

$37 million$37 million in notes is

printed each day.

““Money is the only commodity that is good for Money is the only commodity that is good for nothing but to be gotten rid ofnothing but to be gotten rid of. It will not feed you, . It will not feed you, cloth you, shelter you, or amuse you unless you cloth you, shelter you, or amuse you unless you spend it or invest it. People will do almost spend it or invest it. People will do almost anything for money but money will do nothing anything for money but money will do nothing (by itself) for people.(by itself) for people.

FUNCTIONS OF MONEYFUNCTIONS OF MONEY

1.1. Medium of ExchangeMedium of Exchange;;It is used for the buying and selling of goods and services.

Money enables us to avoid the “coincidence of wants” problem associated in a barter economy.

2. Unit of AccountUnit of Account;;We use money as a yardstick for measuring the relative worth of goods,services, and resources.

Example: A new car selling for $32,000, is worth 32,000 monetary units.A $2 item is twice as valuable as a $1 item.

• Posting the monetary value of G/S require businesses to compete for your dollars. This leads to cheaper prices.

• Posted monetary values also make economic exchanges are faster and easier; because we do not have to guess or haggle over the value.

$$3.293.29

Here’s $3.29 for one gallon.

““She’s fast.”She’s fast.”

3. 3. Store of ValueStore of Value;; the wealth of money can be stored longer than the wealth of commodities. Inflation is the only thing that can destroy the wealth of money.

Greek Coin2,500 years old

Types of MoneyTypes of Money1. 1. Commodity MoneyCommodity Money; something that performs

the function of money but also has intrinsic value by itself.– Milk, meat, tobacco, corn

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2. 2. Representative moneyRepresentative money; paper currency backed by something of intrinsic value. - $35 of currency could be redeemed for $35 worth of gold or silver.

3. 3. Fiat MoneyFiat Money: paper currency backed by nothing of intrinsic value other than the government command that it will be used as a medium of exchange.– Federal Reserve Notes & coins (token money).

And pay me with And pay me with the paper I’ve the paper I’ve printed. printed.

M1

$1,100 Billion(2000)

M1 MoneyM1 Money: : is the narrowest definition is the narrowest definition of the U.S. money supply. It includesof the U.S. money supply. It includes;;•Currency and coins in the hands of Currency and coins in the hands of the publicthe public..• Checkable depositsCheckable deposits. . The largest partThe largest part..

DEFINITIONS OF MONEYDEFINITIONS OF MONEY

2% 46% 52%2% 46% 52%

M1M2

$1,100billion

$5,899billion

M2 MoneyM2 Money:: is is called “near-called “near-

monies” because it contains very monies” because it contains very liquid assets that do not function liquid assets that do not function directly as a medium of exchange, directly as a medium of exchange, but can be converted into but can be converted into currency easilycurrency easily. .

• Savings accounts

• Money market accounts

• Timed deposits

• Money Market Mutual Funds

M1M2M3

$1,236billion

$5,899billion

$8,595billions

M3 MoneyM3 Money: : includes all large includes all large ($100,000 or more) time deposits($100,000 or more) time depositsalso called bank debt.also called bank debt.

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WHAT ABOUTWHAT ABOUT CREDIT CARDSCREDIT CARDS? ? Are They Money?Are They Money?

No they are not “plastic money.” They are simply a means of obtaining a short-term loan from the bank that issued the card. Credit cards are merely a means of deferring payment till the future.

WHAT ABOUTWHAT ABOUT Debit CARDS? Debit CARDS? Are They Money?Are They Money?

Debit cards are considered M1 money; because purchases are deducted from a checking account. They serve as a plastic check.

Debit CardDebit Card

The EndThe End