- Primary sector - monetary authorities (central government and central bank)
- Secondary sector - banking system
- Tertiary sector - non-bank financial intermediaries and the markets where debt instruments are traded
- Unit of account
- Avoid unnecessary calculations of one good barter price in terms of another.
- Allows preferences
- Transmit economic information
- Unit of contract (only need to estimate the future value of one good)
- Means of payment
- Simplifies economic transactions
- Replaces bilateral trading with multilateral trading.
- Money increases the number of similar transactions, increasing competition.
- Store of value - liquidity (over other assets)
- Where exactly money ends and other alternative assets begin may not be essential for economic analysis, and not needed for the practice or the comprehension of monetary policy.
- Is money supply exogenous (determined by a monetary authority) or endogenous (expanding and contracting in line with variations in the volume of credit provided by financial intermediaries)?
- Price of money? Monetarists says inverse of the price level, a Keynesian/Central banker the interest rate. However, also need to consider domestic goods market and the foreign exchange market
- Key question is the neutrality of money - Classical view is money was neutral, Monetarist view is that money can have temporary short-run effects (due to nominal rigidities or mistaken expectations). Keynesian is that real economy adjusts to interest rate (which is a monetary phenonenom)