Money- any asset that can be easily used to purchase goods and services
Three uses of money
- medium of exchange
- used to determine value
- unit of account
- store a value
Three types of money
- Commodity money -value within itself (ex: salt, olive oil, gold)
- Representative money - represents something of value (ex:IOU)
- Fiat Money - money because the government says so (ex: paper money and coins)
All money is not currency
6 characteristics of money
-durability - how long it last
-portability - able to take it wherever you go
-divisibility - can be broken down (coins or $)
-uniformity - looks the same
-limited supply
-Acceptability
backed by fiat money
Money Supply- all the available money in the U.S. Economy
M1 Money:
-consist of liquid asset - easily convertible to cash (ex: currency, coins, checkable deposits(checks), travelers check)
M2 Money:
-consist of liquid money + savings account + money market account
Financial Institutions
- to store money
- to save money
- to loan money (credit card & mortgage)
4 ways to save money
-to a savings account
-to a checking account
-through money market account
- A CD
Loans:
-Banks operate on a fractional reserve banking system which means they keep a fraction of the funds and loan out the rest.
Interest Rate
-principal -amount of money borrowed
-interest- price paid from the use of borrowed money
Simple interest- paid on the principal
Simple interest formula
I=P x R x T /100
Time = Ix100/PxR
P=Ix100/RxT
R=Ix100/PxT
Compound interest - paid on the the principal plus the accumulated interest
Types of financial institution
-commercial banks
-savings and loans institutions
-mutual savings bank
-credit union
-finance companies
What is the difference between representative money and fiat money? And also, under your subheading '4 Ways to Save Money', what does the acronym 'CD' mean?
ReplyDeleteI like the way your notes are straight to the point. By that I mean that I would use these as a study guide. But I'm going to piggy back with what Selena asked, the difference between representative and fiat money isn't that clear. In the future, for the formula's I think you should make it clear what each variable represents, i.e: "P" I was confused just for a second on what it was. Other than that, these are a great set of notes!
ReplyDeleteI like your notes and how they are organized. The subheadings make things easier to find. To answer Selena's question representative money is like back then when the US was on the gold standard. This meant that the paper money you had was worth some gold in the bank. While now we use Fiat money, which means it has value just because the government said so. Basically representative money was representing something that was in the bank like gold, while Fiat money is just money because the government decided it was. If the government decided that it wasn't money and something else was, that would make all the cash we have just pieces of cloth that have no value.
ReplyDeleteYou seem to have left out M3 money, which is something much broader than M1 and M2 money. Essentially, it is M1 and M2 money combined with large ($100,000 or more) time deposits. These time deposits are usually owned by businesses as certificates of deposits.
ReplyDelete