Money And Money Supply

Question 1

What are the types of Money?

Answer 1

Currency

Deposit Accounts

Question 2

What types of currency are there?

Answer 2

Coin (a piece of metal used as a form of money)

Banknote (a promissory note made by a bank, payable to the bearer on demand)

Question 3

What is a Legal Tender?

Answer 3

A payment, that by law cannot be refused in settlement of a debt denominated in the same currency.

Question 4

What are the Types of Money (Evolution of money)

Answer 4

Commodity Money (value comes from the commodity out of which they are made)
Representative Money (physical tokens-banknotes, value comes from the commodity which backed it)
Scriptural Money (bank money)
Fiat money (any money declared by government to be legal tender, vulnerable to the laws of supply and demand)

Question 5

What type of money are most modern currencies?

Answer 5

Fiat money

Question 6

What is money

Answer 6

• a true financial asset
• anything generally accepted in the payment of goods and services
• anything that serves as a medium of exchange
• currency
• wealth
• income

Question 7

How should be a medium of exchange?

Answer 7

• easily standardized
• widely accepted
• divisible
• easy to carry
• not deteriorate quickly

Question 8

What purposes does money have?

Answer 8

Medium of exchange
Standard of value
Store of value

Question 9

What is a standard of value?

Answer 9

• it measures value in economy
• measures the relative worth of goods and services
• reduces transaction costs

Question 10

What is a store of value?

Answer 10

• a reserve of purchasing power over time

- a perfectly liquid asset

Question 11

What is a liquid asset?

Answer 11

An asset that can be converted into cash quickly with little to no loss in value.

Question 12

What is virtual currency?

Answer 12

A digital representation of value, not issued by a central bank, credit institution or e-money institution.

It is not a full form of money and it does not meet all three functions of money.

It is not money from a legal perspective.

Question 13

What is e-money?

Answer 13

It is fiat money in a virtual environment used mainly for online payments.

Question 14

What is the money supply?

Answer 14

Money supply is the entire stock of monetary assets within an economy.

Question 15

What can the money supply include?

Answer 15

Cash
Balances held in checking or saving accounts
Other liquid assets

Question 16

What is M0?

Answer 16

M0 is not part of the money supply.

M0 is cash money and commercial bank deposits held at the central bank.

Question 17

What is M1?

Answer 17

Currency in circulation outside of banks.

Demand deposits held by the public.

Question 18

What is M2?

Answer 18

M1+Term deposits, saving accounts, small certificates of deposit.

Question 19

What is M3?

Answer 19

M2+Less liquid assets (large deposits, debt securities)

Question 20

What is the equation of exchange?

Answer 20

M*V=P*Y
M=money supply
V=velocity of money
P=price level
Y=real income
P*Y=Nominal income