Terms and concepts

Money has several defining characteristics. It is:

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  Durable.
  
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  Divisible.
  
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  Portable.
  
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  Liquid.
  
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  A unit of account.
  
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  Legal tender.
  
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  Resistant to counterfeiting.
  

Money serves four primary purposes. It is:

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  A medium of exchange: an object that is generally accepted as a form of payment.
  
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  A unit of account: a means of keeping track of how much something is worth.
  
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  A store of value: it can be held and exchanged later for goods and services at an approximate value.
  
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  A standard of deferred payments (this is not considered a defining purpose of money by all economists).
  

M1 is the narrowest measure of the money supply, including only money that can be spent directly. More specifically, M1 includes currency and all checkable deposits.

M2 is a broader measure of the money supply than M1, including all M1 monies and those that could be quickly converted to liquid forms.