Functions of money
1. “NIS PMD SHYMKENT”Economics grade 12
2. “The Monetary System”
3. ContentsDefinition of Money…
Kinds Of Money
Functions Of Money
The Demand For Money
Four Money Supply definitions
Determination of Rate of Interest
4. What is Money????
5.“Money is a good that acts as a
medium of exchange in transactions,
it is said that money act as a unit of
account, a store of value and medium
6. Properties Of MoneyLiquidity
7. Kinds Of MoneyCommodity money
Convertible paper money
8. Commodity money• Can be used for other purposes.
• Have inherent value.
Gold, Silk, Cattle, Silver
9. Convertible Paper MoneyThe paper money that can be convertible
into gold and silver.
Examples are Gold and Silver
10. Inconvertible Paper MoneyThe paper money that can’t be converted
into Gold and Silver.
Also called as Legal Tender Money.
Examples are Notes and Coins issued by
11. Bank DepositsIn current society most of the money used
is Bank deposits…
Examples of Bank Deposits are
Negotiable certificates of deposit
12. Electronic MoneyThe money stored in certain electronic
Transactions are made electronically.
Examples are Credit Card, Debit card,
Charge card etc…
14. Money as Medium of ExchangeNo wastage of time.
Higher volume of transactions.
Remove the problem of coincidence of
Increase level of Trade.
15. Money as a unit of AccountProvide a common measurement for the
relative value of goods.
The monitory unit may have different
name in different countries.
16. Money as a store of ValueAbility of money to store value over the
Durability factor enables to convert your
income into future purchases.
However inflation can destroy this
17. Are credit cards money???
18. Why people hold money???
19. Three motives of holding money!!!Transactions Demand
20. Transactions DemandStock of money to pay everyday
Quick and easy purchases are main push
to hold money.
The holder has to suffer “cost of holding”,
namely interest rate you forego.
21. Precautionary MotivesThe stock of money for uncertain
People who don’t want to go for loans
have great interest to hold money.
Opportunity cost incurs of the interest
22. Speculative MotivesHolding of money due to the expected rise
in interest rates.
People use to convert their money into
interest bearing instruments such as
bonds, stocks and other non-money
People hold more when interest rate is low
and hold less when interest rate is high.
23. INTERESTThe major factor to determine the stock of
money held by people is the INTEREST!!!
24. Money Supply Definitions
25. Monetary BaseM1
Sum of currency in the hands of nonpublic and stock of cheque account
deposits at banks.
Sum of M1 plus all other bank deposits of
26. Broad MoneyM3 plus the public’s deposits at non-bank
financial institutions less currency and
bank deposits held by these NBFI’s.
27. CurrencyIncludes coins and paper money.
It constitute 20% of the M1 money supply.
Its purpose is to make small purchases.
28. Cheque Account DepositsThe total of cheque accounts balances in
banks convertible to currency on demand
by writing a cheque without advance
Inteset bearing accounts in banks
drawnable by issuing pass book.
29. Determination of Interest Rate
30. Equilibrium Interest Rate
31. Excess quantity of money demandedExcess money
Excess demand for money causes interest rates to rise.
32. Excess quantity of money suppliedExcess money
Excess supply for money causes interest rates to fall.