What Is Money?
   Everyone uses money. We all want it, work for it and think about it. If
   you don't know what money is, you are not like most humans. However,
   the task of defining what money is, where it comes from and what it's
   economics. While the creation and growth of money seems somewhat
   intangible, money is the way we get the things we need and want. Here
   we look at the multifaceted characteristics of money. (Get A Short-Term
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   What is Money?
   can be hard to talk about money with your children, especially when
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   To solve these problems came commodity money, which is a kind of
   Another example of commodity money is the U.S. currency before 1971,
   If we think about this relationship between money and gold, we can gain
   some insight into how money gains its value: like the beaver pelts and
   people's perception. (You don't need an MBA to learn how to save money
   The second type of money is fiat money, which does away with the need
   gold did: by means of people's perception and faith. Fiat money was
   quickly couldn't always mine enough gold to back their money
   requirement. For a booming economy, the need for gold to give money
   Fiat money, then becomes the token of people's apprehension of worth -
   the basis for why money is created. An economy that is growing is
   the stronger its money will be perceived (and sought after) and vice
   That is why simply printing new money will not create wealth for a
   country. Money is created by a kind of a perpetual interaction between
   in what has value: money is valuable because we want it, but we want it
   Sure, money is the $10 bill you lent to your friend the other day and
   don't expect back anytime soon. But exactly how much money is out there
   everyday to see whether there is inflation or deflation. To make money
     * M1 – This category of money includes all physical denominations of
       and NOW accounts, and travelers' checks. This category of money is
       money used to make payments.
     * M2 – With broader criteria, this category adds all the money found
       non-institutional money-market funds. This category represents
       money that can be readily transferred into cash.
     * M3 – The broadest class of money, M3 combines all money found in
       institutional money-market funds, short-term repurchase agreements,
   money supply, or total amount of money within an economy.
   How Money is Created
   Now that we've discussed why and how money, a representation of
   central bank (the Federal Reserve in the U.S.) can manipulate the money
   level of a country's money supply. Let's look at a simplified example
   of how this is done. If it wants to increase the amount of money in
   we learned, the physical bills are only a small part of the money
   Another way for the central bank to increase the money supply is to buy
   buys these government securities, it puts money in the hands of the
   this? As strange as it sounds, they simply create the money out of thin
   the money supply, the central bank does the opposite and sells
   government securities. The money with which the buyer pays the central
   can issue more of it. But if the Fed issues too much money, the value
   even though technically it can create money "out of thin air," the
   central bank cannot simply print money as it wants.