Money has become the most important means of payment in the world and the one that is capable of controlling it. Money is all the assets or goods that are accepted as payment for a purchase or to cancel outstanding debts with other people. It is considered as a medium of exchange, unit of account or store of value.
They consider it a means of exchange because it can be exchanged for goods or services, a unit of account because it helps to reach an agreement on the value of these goods or services and I deposit at value because I can use it later to make a purchase, that is, that must be deposited to have a value.
When purchases of high values are made between two people there are financial intermediaries that are the institutions of financial entities that help make better investments and save. In our country, Ecuador, there are two types of public and private, public that the government manages and intervenes in the decisions that are taken and private that are managed without state intervention. One of the well-known financial entities is the central bank, while in the US there is the Federal Reserve.
To produce money, banks have to control the number of deposits made, that is, it depends on the number of movements that are made in all these financial institutions to create it and the number of money that families manage, that is, the monetary base. And desired reserves, which is all the money that banks manage to be able to give their loans, investments, among other services they offer.
And finally we have the quantity theory of money, which occurs in the long term causing an increase in money leading to an increase, but in a percentage way in relation to the price level.
References
Mochón, F.
(2014). Macroeconomía con aplicaciones de América Latina, primera edición.
México DF: McGraw-Hill Education.
