Final answer:
Currency types include paper money, coins, and banknotes, which are used for transactions, whereas government bonds and treasury notes represent government debt instruments used for saving and investment. M1 and M2 are measures of money supply, with M1 being more liquid and M2 including additional forms like savings accounts and money market funds.
Step-by-step explanation:
Money is a critical component for the operation of modern economies, serving several functions: as a medium of exchange, a unit of account, a store of value, and a standard of deferred payment. There are many types of currency, each with its own characteristics and uses. Paper money and coins are physical forms of currency, widely recognized and used for transactions. Banknotes, another form of paper money, represent a promise to pay the holder a certain amount and are commonly used as legal tender. Government bonds and treasury notes are not typically used as a medium of exchange in daily transactions but represent borrowed money that the government promises to repay with interest and are often used as a tool for saving and investment.
Measuring Money: M1 and M2
The money supply can be classified into different categories, M1 and M2 being the most commonly used metrics. M1 includes currency, the money in checking accounts (demand deposits) and, to a lesser degree, traveler's checks. M2 encompasses all of M1 plus additional forms like savings deposits, time deposits such as certificates of deposit, and money market funds.
Revenue refers to the income generated by a government or a business, while expenditure denotes the costs or payments made. Understanding the flow of currency, revenue, and expenditure is essential for analyzing economic performance and making financial decisions.