Money

3 Uses of money

1. Medium of exchange
2. Unit of account - establish economic worth in exchange process
3. To barter or trade - money holds value over a period of time products do not

Types of money

1. Commodity Money - Value is from the type of material its made from. (ex gold coins)
2. Representative Money- Paper money backed up by something tangible that gives it value
3.  Fiat Money- Money cause the government says so

Characteristics of Money
1.portable          2.Durable
 3.scarce             4. Divisible
5. Acceptable       6. Uniform
Money supply
M1- consist of currency ( cash and coins) Checkable deposits most liquid travelers check
M2- consist of M1 money along with savings account market and deposits held by banks out side U.S and is not liquid
M3 - consist of M2 + certificate\ of deposit held by an private institution
A dollar today is worth more than one tomorrow because of inflation this the reason for paying interest Time value of money Let V= future value nof money P= present value of money R= real interrest rate nominal - interest rate
n=years
K number of times intrest is credited per year
Simple interest V=(1+r\k)^n*p
compound interest V=(1+r\k)^nk*P

Demand for money Has an inverse relationship between nominal intrerest rates and the Quanity of money demanded.