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AP Economics

AP Economics. Mr. Bernstein Module 23: The Definition and Measurement of Money February 27, 2014. AP Economics Mr. Bernstein. The Definition and Measurement of Money Objectives - Understand each of the following : The definition and functions of money

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AP Economics

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  1. AP Economics Mr. Bernstein Module 23: The Definition and Measurement of Money February 27, 2014

  2. AP EconomicsMr. Bernstein The Definition and Measurement of Money • Objectives - Understand each of the following: • The definition and functions of money • The various roles money plays and the many forms it takes in the economy • How the amount of money in the economy is measured

  3. AP EconomicsMr. Bernstein Roles of Money • Definition: Money is anything that is easily exchangeable for goods and services • Money is NOT the same thing as wealth • Medium of Exchange • Eliminates difficulties of barter system • Store of Value • Does not decay (other than inflation) • Measure of the relative worth of goods and services

  4. AP EconomicsMr. Bernstein Types of Money • Commodity • ie gold or silver, often has other intrinsic uses • Commodity-backed money • No intrinsic value but has promise of ability to be converted into commodity with value

  5. AP EconomicsMr. Bernstein Types of Money, cont. • Fiat money • Value derives entirely from its official status as medium of exchange • “This note is legal tender for all debts, public and private.”

  6. AP EconomicsMr. Bernstein Measuring the Money Supply • Monetary Aggregates • M1 = Currency and coin in circulation + checking deposits + traveler’s checks • M2 includes “near monies” easily exchangeable into cash and paying interest • M2 = M1 + savings accounts + short term CDs + money market accounts

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