Money is a medium of exchange. It is a unit of account. It is a store of value.
Barter System needs a double coincidence of wants in order to work The wants of two people HAVE to match up for a successful barter. If you have a goat and wanted a cow, you had to find someone who a) is willing to trade a cow b) wants/accepts a goat in exchange
Characteristics of Money
Acceptability
Portability
Durability
Divisibility
Uniformity
Limited Supply / Scarcity
Demand for Money
Income increases = Money demanded increases Higher int rates, more saving in bank, less money demanded
Supply of Money
Two types :-
A) Central
- Issues currency
- Sets interest rates, controls money supply, banker to govt, banker to banks,
custodian of foreign exchange - Currency issues can be held by public / commercial banks and is known as
HIGH POWERED MONEY or RESERVE MONEY or MONETARY BASE
Base for credit creation
B) Commercial Banks
- Accept deposits, lend part of it
- Spread - diff bw the int rate
- Credit creation