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Mr. Kraus Economics. Money: Definitions, Measures, Time Value + Introduction to Quantity Theory. Money Defined. Money is anything that can be used as: A medium of exchange A store of value A unit of account / Standard of Value Money works best when it meets these criteria: Portable

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mr kraus economics

Mr. Kraus Economics

Money: Definitions, Measures, Time Value + Introduction to Quantity Theory

money defined
Money Defined
  • Money is anything that can be used as:
    • A medium of exchange
    • A store of value
    • A unit of account / Standard of Value
  • Money works best when it meets these criteria:
    • Portable
    • Durable
    • Divisible
    • Acceptable
    • Stable
money facts
Money Facts:
  • What backs the dollar and makes it valuable?
    • Gold?
    • NO! The dollar is legal tender because the government says it’s money and people willingly accept it. The Dollar is backed by FAITH.
    • This is referred to as an inconvertible fiat standard.
what is the value of money currency
What is the value of Money/Currency

Intrinsic Value-

What you are able to exchange for it.

Extrinsic Value-

What is provides for the economy and its participants

the supply of money
The Supply of Money
  • In the United States, the Federal Reserve System is the sole issuer of currency.
    • This means the Fed has monopoly control over the money supply.
  • There are two important measures of the Money Supply today.
    • M1
    • M2
slide6
M1
  • M1 serves primarily as a medium of exchange. It includes:
    • Currency and Coin
    • Demand Deposits
slide7
M2
  • M2 serves as a store of value. It includes:
    • The M1
    • Time Deposits
    • Money Market Mutual Funds
    • Overnight Eurodollars

Certificates of Deposit

Savings Accounts

m1 m2
M1 & M2
  • As we go from M1 to M2
    • The measure becomeslarger
    • Money becomes less liquid
  • As we go from M2 to M1
    • Themeasurebecomes smaller
    • Money becomesmoreliquid
time value of money
Time Value of Money
  • Is a dollar today worth more than a dollar tomorrow?
    • YES
  • Why?
    • Opportunity cost & Inflation
    • This is the reason for charging and paying interest

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