What is money and what is not money, Macroeconomics

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Q. What is money and what is not money?

If you are trying to conclude if something is money, basically consider whether it would be accepted in most stores as payment. Then you will realize that bonds, stocks, gold or foreign currency aren't money. These should first be exchanged for the national currency before you can use them for consumption. However In some cases, foreign currency will be money. For instance, in some border towns, currency of the bordering country can be accepted virtually everywhere.

You also realize that a number of bank deposits are money. If you have money in an account in a bank and a debit card then you can pay for service and goods by using the card in most places. Funds are withdrawn directly from your account whenever you make the purchasethat makes the deposits as good as cash in your pocket. Counting deposits as money is also consistent with the concept that money measures how much is available for immediate consumption.

But not all deposits can be counted as money. With most savings accounts, you can't connect the account to a debit card and these deposits must not be counted as money. We also note that what is money has nothing to do with the commodity or token itself:

  • USD is money in the United States but not in U.K.
  • Gold is not money though gold was money in some countries in the middle ages. Generally, such diverse commodities as sharks' teeth and cigarettes have been used as money in some places.
  • A national currency can suddenly cease to be money in a country. This may happen if inflation is so high that people shift to another foreign currency.

 


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