Money is a very important aspect of human life and it plays a very crucial role in almost everything. Money is any tangible or verifiable document that’s usually accepted as payment for specific goods and services and payment of debts, including taxes, from a particular country or social-economic context to an individual in another country. In fact, money has been the primary means of exchange for millennia. It acts as the language of contracts and it is the medium of transaction in most of the countries of the world.
Money, as a broad measure, covers money-in-hand (M.I.H.) and money in bank (M.D. ), money in its stock (M.E.B.). The former includes banknotes and certificates of deposit and the latter includes coins and bullion held in the bank. All these forms of money are available on the open market. There are also numerous smaller measures of money supply, which can be referred to as monetary bases.
For classroom use, the various types of money supply discussed in the previous chapter are sufficient for a lesson. However, some school districts require students to learn and practice the concepts of money use through the use of checkable deposits, personnel transfers, and electronic funds transfers. Therefore, we recommend the incorporation of some of the additional measures that will be explained in the following lessons.
The key takeaways from lessons about money supply aggregates are that money plays an important role in economic activity. For example, it acts as the medium of exchange in transactions, and it is used by individuals and businesses to conduct monetary transactions. Thus, the demand for money is high at times of financial crisis, low when the economy is growing. This chapter explains why the money supply aggregates are important for the overall performance of an economy.
Money, like goods, is typically bought and sold in the market. In fact, money is a highly liquid good and it can be easily stored away until needed again. On the other hand, goods such as land or property cannot be stored away for long periods of time. Money can, therefore, act as a medium of exchange, a unit of account, and a store of value.
Money may also be used as a unit of account, a good which is purchased and sold on the open market. In this situation, money acts like a commodity and it is traded with other commodities, including currencies. Because money is generally recognized as a commodity, when money prices rise, other commodities usually fall as well. This principle is what leads to the traditional link between the commodity market participants as a medium of exchange.