Jason Gavin

How Is Money Measured? But exactly how much money is out there, and what forms does it take? Economists and investors ask this question to determine whether there is inflation or deflation. Money is separated into three categories so that it is more discernible for measurement purposes: M1  – This category of money includes all physical denominations of coins and currency; demand deposits, which are checking accounts and NOW accounts; and travelers' checks. This category of money is the narrowest of the three, and is essentially the money used to buy things and make payments (see the "active money" section below). M2  – With broader criteria, this category adds all the money found in M1 to all time-related deposits, savings accounts deposits, and 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 the M2 definition and adds to it all large time dep

Impressions Create Everything. The second type of money is  fiat money , which does not require backing by a physical commodity. Instead, the value of fiat currencies is set by supply and demand and people's faith in its worth. Fiat money developed because gold was a scarce resource, and rapidly growing economies growing couldn't always mine enough to back their currency supply requirements. 3 For a booming economy, the need for gold to give money value is extremely inefficient, especially when its value is really created by people's perceptions. Fiat money becomes the token of people's perception of worth, the basis for why money is created. An economy that is growing is apparently succeeding in producing other things that are valuable to itself and other economies. The stronger the economy, the stronger its money will be perceived (and sought after) and vice versa. However, people's perceptions must be supported by an economy that can produce the products and ser