Money and money supply

Question 1

Functions of money

Answer 1

• Medium of exchange -
• Store of value - can’t deteriorate overtime (inflation can hurt this)
• Measure of value
• Standards of deferred payment - people can borrow from lenders

Question 2

Characteristics of money

Answer 2

• Acceptable
• Portable
• Durable
• Divisible
• Difficult to forge
• limited in supply.

Question 3

What is commodity money?

Answer 3

Any money that has intrinsic value (e.g. gold)

Question 4

What is fiat money?

Answer 4

No intrinsic value (if there’s hyperinflation, then your savings are useless)

Question 5

Types of money

Answer 5

• Notes and coins
• Deposits - stored in banks, liquid
• Near money - non-cash assets that can be converted into money (e.g. bonds).

Question 6

What is the money supply?

Answer 6

the total amount of money that circulates around the economy.

Question 7

Types of measuring the money supply

Answer 7

• Narrow terms (M0) - calculate all the cash around the economy, including deposits (only liquid terms)
• Broad terms (M4) - calculate including non-cash assets like bonds for example (can be converted into cash within 5 years)