Please enable JavaScript.
Coggle requires JavaScript to display documents.
Money - Coggle Diagram
Money
Characteristics of Good Money
Durable
Portable
Divisible
Uniform
Acceptable
Limited in supply
Problems Related to Money
Inflation
Deflation
Hyperinflation
Counterfeiting
Loss of Confidence
Functions of money
Medium Of Exchange
Used to buy and sell goods and services
Avoids the inefficiencies of barter
Unit of Account
Common measure for valuing goods and services
Facilitates price comparisons
Store of Value
Maintains value over time
Can be saved and used in the future
Standard of Deferred payment
Used to settle debts in the future
Facilitates credit and financial planning
Types of Money
Commodity Money
Has intrisic value (gold)
Fiat Money
Has value by government decree
No intrinsic value(paper money)
Representative Money
Backed by a physical commodity (gold certificates)
Digital Money
Exists electronically (Bank balances, cryptocurrencies)
Money Supply
M1
Currency in circulation
Checkable deposits
M2
M1 plus savings deposits
Time deposits
Money Market Mutual Funds
M3 (in some countries)
M2 plus large time deposits and institutional money market funds
Monetary Systems
Gold Standard
Money backed by gold
Fixed exchange rate
Fiat System
Not backed by physical commodities
Central banks control money supply
Cryptocurrency Systems
Decentralised
Based on blockchain technology
Value of Money
Determined by supply and demand
Influenced by:
Inflation
Confidence in the economy
Stability of the government
Purchasing Power: Amount of goods and services money can buy
Demand for Money
Transactions Demand
For everyday spending
Precautionary Demand
For unexpected expenses
Speculative Demand
To take advantage of future investment opportunities
Definition
Anything that is generally accepted as a medium of exchange
Recognised as a measure of value and a store of value
Creation of Money
Central Banks (Federal Reserve)
Print currency
Control interest rates
Regulate commercial banks
Commercial Banks
Create money through fractional reserve banking
Loans multiply the money supply