part of the study of economics. Money, after all, is involved in
nearly all economic transactions. This section explains the
nature and functions of money, the demand and supply of
money and the role of the banking system in the money –
creation process.
Definition of Money What is money? Money is any good that is widely used
and accepted in transactions involving the transfer of goods and
services from one person to another. Economists differentiate
among three different types of money: commodity money, fiat
money, and bank money. Commodity money is a good whose
value serves as the value of money. Gold coins are an example
of commodity money. In most countries, commodity money
has been replaced with fiat money. Fiat money is a good, the
value of which is less than the value it represents as money.
Dollar bills are an examples of fiat money because their value
as slips of printed paper is less than their value as money. Bank
moaney consists of the book credit that banks extend to their
depositors. Transactions made using checks drawn on deposits
held at banks involve the use of bank money.
