Реферат: What Is Money Essay Research Paper What

earn interest, but also its real value will drop during periods of inflation.

?1 is still ?1 after a period of time, but due to inflation its purchasing power

will be less. Less liquid assets earn interest and thus are not as affected as

money is by inflation, although they are harder to convert to money. It can be

argued that sight deposits, which are instant access chequing accounts, are

only slightly less liquid than money, as cheques are accepted as a form of

payment. Wealth need not

be only stored in money, but in other, less liquid assets. The amount of money

in an economy is a necessary tool for fiscal policy, and thus it is necessary

to know how it can be calculated. The supply of

money is the stock of liquid assets in an economy which can be exchanged for

goods or services. It is not simply the number of notes, coins, and deposits of

banks held at the central bank). This has a number of names: it may be called

the monetary base, high-powered money, M0, or narrow money. This definition

of the money supply is rather limited, being not much more than a mere

description of how much token money is in circulation and how much is lodged at

the central bank. Although other,

wider definitions are used, known as broad money, the most common one is M4.

This covers all that M0 does, but also non-interest-bearing bank deposits,

other bank retail deposits, retail shares and deposits at building societies,

and wholesale deposits (including certificates of deposits) at banks and

building societies. It has been argued that the simple summing of M4 to

estimate the money supply takes account neither of the liquidity of the various

assets nor of their differing abilities to earn interest. M4, it is said,

erroneously presumes they are perfect substitutes. The Divisia Index avoids

these problems by weighting each component of m4 according to their role in

transactions. This, though, will not affect the theory discussed below. M4 is therefore

far larger than M0, and this is mainly due to the actions of banks. If banks

merely stored all that was deposited in them, the money supply would not be