What Is Money?
What is Money?
Understanding the Definition of Money
- The video begins by questioning the ordinary meaning of money, aiming for a deeper understanding of money, banking, and central banking.
- Economists define money as a widely accepted means of payment, which can be anything easily used to buy goods and services.
Forms of Money
- Currency (paper bills and coins) is clearly defined as money; however, most payments are made through checks or debit cards that transfer funds from bank accounts.
- Checking accounts are also considered money due to their role in facilitating transactions. Savings accounts complicate this definition since they cannot be directly used for purchases but can easily transfer funds to checking accounts.
Broader Definitions and Examples
- The discussion extends to whether items like jewelry or comic books qualify as money. While comic books can be sold for cash, the effort involved makes them less practical as a means of payment.
- The key takeaway is that any asset widely used for payment or easily convertible into such with minimal value loss may be considered money.
Measures of Money Supply
- Economists have established various measures of the money supply: the monetary base, M1, and M2.
- Monetary Base: Defined as currency plus reserve deposits held by banks at the Federal Reserve.
- M1: Includes currency plus checkable deposits.
- M2: Encompasses M1 along with savings deposits, money market mutual funds, and small-time deposits.
Importance of Monetary Base