Question

1.) What are the three purposes of money in the modern economy? What are the three official measures of the money supply (what types of money belong in each group)?

Answer 1

In the modern economy ,three main purposes of money are as follows

1 medium of exchange

Money is used to purchase goods and services. Money allows as to use the systems of trade beyond barter system.

,2. Unit of account

Money can be used to compare the value of different goods and services. We can determine the best value when we are given similar offers for goods and services.

3 store of value

Function of money as a store of value refers to the use of money to save purchasing power from the time income received until the time its spend.

* Three measures of money supply and components

1) M1 -Narrow money

It includes all currency in circulation, travellers checks, demand deposits of commercial banks held by the public, and other checkable deposits.

2) M2 - intermediate measure

M1 + most savings accounts ,money market accounts, small denomination time deposits and certificates of deposits below US dollar 100000

3) M3- broad money

M2 + all other certificates of deposits ,deposits of eurodollars and repurchase agreements