Something that almost every person in America has in their wallet is money, whether it be 20 dollars or a one dollar bill. We all use money every day to eat, survive, and get around. The money supply in America can effect a single person to a large firm like the Apple Corporation. In this paper I am going to discuss the purpose money, how the government has the chance to influence the amount of money in our economy, and the monetary policy affects the Apple Corporation.
The Purpose and Function of Money
What is money? Money is a medium of exchange, a store value, and a unit of ...view middle of the document...
Money is an asset and does this because you can always save money, and spend it later. Money also serves as a unit of account because it is a unit used to provide a consistent way of quoting prices. One example is when you are shopping online, next to each item is a price in dollars, so you know how much everything cost. There are also different types of money. The one we use here in America is called fiat money, which is money that has no intrinsic value of its own (Case, Fair, Oster, 2012). This means that it doesn't have a lot of worth if we did not give it one. As mentioned before, if we did not give money value it would just be a green piece of paper. The other type of money are commodity money which are used in some places in the world. Commodity money are items that have intrinsic value such as diamonds, silver, and gold (Case, Fair, Oster, 2012).These items have intrinsic value because they have value in themselves. So why don't we just use diamonds for payment instead of money? We use paper money and coins as legal tender because the government declares it so. When money is a legal tender "It must be accepted in settlements of all debts" (Case, Fair, Oster, 2012).
One of the important traits that money has is the ability to be liquid this means that it is very easy to convert it into spending. Why is being liquid important? Being liquid is important because that is how we spend money. The most liquid form of money is currency or cash because it is very easy to spend it. If you write a check from your checking account as payment it is still considered money but it is less liquid because not everyone will take a check, plus a check takes time to process. Being that money can come in many forms there are two main definitions of money. The first one is M1 or "Narrow Money." This consists of currency (cash), checking accounts (including debit cards, and checks), travelers’ checks, and other checking deposits (Case, Fair, Oster, 2012). The second one is M2 or "broad money". This consists of savings deposits and money market funds (Case, Fair, Oster, 2012).
Many people do not keep all the money they have on them. So where does this money go? Most of the money in United States today is in a bank of one sort or another (Case, Fair, Oster, 2012). When you put your money in the bank you are lending the bank your money, and they in turn lend it to people who need money. Banks, savings and loans, credit unions and other bank like institutions are called financial intermediaries. They act as a link between those who have money to lend and those who want to borrow money (Case, Fair, Oster, 2012). The main type of financial intermediaries are commercial banks and depending on the terms of your account the bank has different legal obligations to return your money when you ask for it. Checking accounts are known as “demand deposits” because your bank is obligated to give you your money when you ask for it (Bishop, 2013). Some savings accounts may be...