Economists, financial analysts and government officials speak about money and its role in the economy. The U.S. money supply consists of currency, checking accounts, traveler's checks, money market funds and savings deposits.
Paper money and coins make up the nation's currency. The Bureau of Engraving and Printing, a division of the U.S. Department of the Treasury, printed more than 25 million pieces of paper money each day during 2010. Most of these bills replaced bills that were removed from circulation and destroyed. When the supply of money in circulation increases, the value of each dollar decreases, causing prices to rise. When the supply of money in circulation decreases, the value of each dollar increases, causing prices to drop.
Depositors leave their money in checking accounts at banks and credit unions. Checking accounts give the depositor the ability to write checks or use debit cards to conduct financial transactions. The depositor can access funds as long as they are available in the account. The depositor's account balance represents a portion of the nation's money supply.
Consumers purchase traveler's checks from financial institutions to use in place of currency. Traveler's checks are accepted at businesses throughout the country. Many consumers purchase traveler's checks when they go on vacation to reduce their need to carry cash. Traveler's checks provide some protection to consumers because the financial institution can replace the checks if they are lost or stolen.
Video of the Day
Money Market Funds
Money market accounts operate similarly to checking accounts. Consumers deposit funds into a financial institution. The financial institution invests these funds and pays a return to the consumer. The consumer usually has check-writing or debit card privileges associated with the money market account.
Consumers open savings accounts with financial institutions and deposit money into the account. The financial institution holds the money for the consumer and pays interest to the consumer for holding the money. The consumer holds no check-writing or debit card privileges. The consumer can withdraw money from this account either at the financial institution or by using an automated teller machine.