Money is any generally accepted means of payment for delivery of goods or settlement of debt. It is the medium of exchange.

A barter economy has no medium of exchange. Goods are swapped for other goods.

The unit of account is the unit in which prices are quoted and accounts kept.

Money is a store of value because it can be used to make future purchases.

A token money is a means of payment whose value or purchasing power as money greatly exceeds its cost of production or value in any other use.

An IOU money is a medium of exchange based on the debt of a private firm or individual.

Bank reserves are the money available in the bank to meet possible withdrawals by depositors. The reserve ratio is the ratio of reserves to deposits.

The money supply is the value of the stock of the medium of exchange in circulation.

Liquidity is the cheapness, speed and certainty with which asset values can be converted back into money.

The money in sight deposits can be withdraw ‘on sight’ without prior notice. Time deposits, paying higher interest rates, require the depositor to gice notice before withdrawing money.

A financial intermediary specializes in bringing lenders and borrowers together. Commercial banks are financial intermediaries licensed to make loans and issue deposits, including deposits against which cheques can be written.

The interest rate spread is the excess of the loan interest rate over the deposit interest rate.

A financial panic is a self-fulfilling prophecy. Believing a bank will be unable to pay, people rush to get their money out. But this makes the bank goes bankrupt.

The monetary base or stock of high-powered money is the quantity of notes and coin in private circulation plus the quantity held by the banking industry.

The money multiplier is the ratio of the money stock to the monetary base.

The cost of holding money is the interest given up by holding money rather than bonds.

The transactions motive for holding money reflects the fact that payments and receipts are not synchronized.

The demand for money is a demand for real money balances.

In an uncertain world, there is a precautionary motive to hold money. In advance, we decide to hold money to meet contingencies that we cannot yet foresee.

The asset motive for holding money reflects dislike of risk. People sacrifice a high average rate of return to obtain a portfolio with a lower but safer rate of return.