In the ancient empires of Egypt, Babylon, India and China, the temples and palaces often had commodity warehouses which issued certificates of deposit as evidence of debt, a form of “representative money.” According to economist William Stanley Jevons, representative money arose because metal coins often were ” …

Writing a price tag is an example of the unit of account function of money. As a store of value, money is used to store purchasing power between the time income is received and the time it is spent.

Representative money includes things like token coins, paper money and different forms of certificates representing commodities. They have no value of its own and it is not made from the commodity it represents. Gold and silver certificates are two examples of representative money.

M1 is a narrow measure of the money supply that includes physical currency, demand deposits, traveler’s checks, and other checkable deposits. M1 does not include financial assets, such as savings accounts and bonds.

Money is either currency held by the public or bank deposits: M =C+D. The monetary base is either held by the public as currency or held by the banks as reserves: B =C+R. For example, a one-dollar withdrawal from the bank causes C to rise by one and R to fall by one, so the sum is unchanged.

In comparison to the money supply, the monetary base only includes currency in circulation and cash reserves at a bank. In contrast, the money supply is a broad term that encompasses the entire supply of money in a country. Money supply includes fewer liquid assets, such as demand deposits (money in a checking account.

Money Multiplier = 1 / Reserve Ratio The more the amount of money the bank has to hold them in reserve, the less they would be able to lend the loans. Thus, the multiplier holds an inverse relationship with the reserve ratio.