Money

Question 1

What are the functions of money?

Answer 1

1. Medium of exchange
2. Unit of account
3. Store of wealth
4. Producer of wealth

Question 2

What are the three approaches to money?

Answer 2

1. Barter (requires a double coincidence of wants unfortunately)
2. Commodity money (fluctuates with commodity value, inconvenient to carry unfortunately)
3. Fiat money (easy to inflate unfortunately but more predictable fluctuations)

Question 3

What are the classifications of money?

Answer 3

M1: Cash and checkable accounts
M2: Plus on-demand savings accounts
M3: Plus saving accounts and short-term investments
M4: Plus long-term investments
M5: Plus stuff like land and art