What is Money? A medium of exchange A store of value A measure of value A means of deferred payment
Where Does the Money Come From? Notes and coins circulating in an economy Deposits with banks and other financial institutions MONEY SUPPLY
Financial Assets Cash can lose its value over time as prices rise. Financial assets can provide a good store of value, hence they are a good form of money, especially if they can be converted easily into cash. We say they are liquid assets, or are near money. E.g. personal savings can be withdrawn immediately but savings tied up in a bond for two years will not become a medium of exchange until the bond has matured.
Physical Assets E.g. jewellery, valuable antiques. A good store of value but are not generally acceptable in exchange for other goods and may be difficult to sell quickly to raise cash. Hence, they are not near money. They can go down in value over time if they become less collectable or damaged.
Velocity of Circulation The number of times notes and coins are exchanged, or circulate in an economy over a period of time. E.g. you make $1 in return for some work. You buy a magazine for a $1. The shopkeeper uses that $1 to buy gas. This dollar has been used 3x and created $3 of income.