Monetary Economics/What is Money?

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What is Money?[edit]

It is useful when defining the entity 'money' to look at what 'money' is used for, at least according to economists. There are 3 generally accepted uses of money:

  1. As a medium of exchange
  2. As a unit of account
  3. As a store of value

We can then approach the question of exactly what 'money' is by taking 'money' to mean that entity which we can use to fulfil the functions of 'money', as defined above. It is then possible to measure money in the real world, making decisions as to what form of monetary balance would meet our criteria of what 'money' is. Moreover, this approach enables us to section the money market along the various lines defined by the different motives to hold money, increasing the flexibility of our analytic model.

This section will look at each function of money in turn, and examine how each function affects the definition of money. We then look at the practical measurement of money in the real world.