Money

Economic Definition of Money

Money is defined as something which serves as a means of exchange, a store of value, and a unit of account and represents only an extremely small fraction of the real wealth of any given society or country where it is used. The currency which serves as money may be backed by some tangible commodity, or may be fiat money. Alternatively, trade may be carried on using commodity pay, wherein existing commodities are assigned exchange values but not explicitly designated as money.

Money Neutrality and the Money Market

Money may be viewed as neutral or non-neutral regarding the real economy; it is disputed whether changes in the money market cause changes in real markets. The money market itself consists of a money supply (typically fixed for any given period) and a demand function for money. Because the quantity of money is typically exogenously given, the only variable determined in the money market is the price of money.