The functions and characteristics of money, the role of commercial and central banks, credit creation, the money supply and the demand for money, and how interest rates are determined.
The functions of money
Money is anything widely accepted in exchange for goods and services. It performs four functions:
Medium of exchange — removes the need for the "double coincidence of wants" of barter.
Unit of account — a common measure of value for pricing.
Store of value — wealth can be held and used later (undermined by inflation).
Standard of deferred payment — debts can be settled over time.
To work well, money needs desirable characteristics: durability, portability, divisibility, acceptability, scarcity (limited supply) and uniformity. Modern money is mostly bank deposits plus notes and coin.
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