The term monetary value is used less frequently in the context discussed here; the terminology of purchasing power is more popular. However, both terms denote the same state. Monetary value is the value that is required to acquire a certain commodity in a currency area. The rule is that the monetary value is variable. The terms for this variability are inflation and deflation.
- Monetary value is the value that is required to acquire a certain commodity in a currency area. The rule is that the monetary value is variable.
- The Federal Statistical Office has put together a representative shopping basket that weights the individual product groups differently.
- Deflation is poison for the economy, moderate inflation of up to two percent of the ideal situation.
Inflation and deflation
Inflation, the loss of purchasing power, means that a certain good has to be paid a higher price at a later point in time than at an earlier point in time. Deflation, on the other hand, means that less money has to be paid for a commodity at a later point in time than at an earlier point in time. If there is no price change during the comparison period, the term for constant prices is stagnation.
Determination of monetary value
In order to be able to measure the monetary value of an economy, it is difficult to look at every product available on the market individually. Against this background, the Federal Statistical Office has put together a representative shopping basket that weights the individual product groups differently. The percentage composition for 2010 was as follows:
- Food, non-alcoholic beverages: 10.3%
- Tobacco products, alcoholic beverages: 3.8%
- Clothing, shoes: 4.5%
- Housing, water, gas, fuels: 31.7%
- Furnishings: 5.0%
- Health, care: 4.4%
- Transport: 13.5%
- Messaging, 3.0%
- Leisure, culture, entertainment: 11.5%
- Education: 0.9%
- Hotel, restaurants: 4.5%
- Other goods and services: 7.0%
The price development is measured individually for each of these twelve groups and then incorporated into the overall assessment as a percentage. The weighting of the individual types of goods within the shopping cart is constantly being revised. The proportion of tobacco products and alcoholic beverages is declining, while the weighting of housing, water, gas and fuel has increased, as these items place a significantly greater burden on households.
The monetary value in the external relationship
The monetary value can not only be measured internally, but also in comparison to other economies. This is done by setting exchange rates. Even if exchange rates for freely tradable currencies result from supply and demand, these two factors are not only based, but also on the monetary value of the currency in domestic trade. It should be noted here that speculative approaches by investors can mean that the external value of a currency can deviate from the actual monetary value domestically.
A moderate loss of monetary value is desirable
Inflation is the greatest enemy of consumers. Deflation, an increase in the value of money, should actually be all the more desirable. However, the opposite is true. Deflation is poison for the economy, moderate inflation of up to two percent of the ideal situation.
Deflation is the result of a lack of demand, which in turn results from insufficient disposable income for consumers. A lack of income is usually the result of a lack of employment. Companies have to sell their goods, so they have to lower prices and there is no need to continue producing. Conversely, inflation is the result of increased demand, since demand determines the price. Increased demand results from higher disposable income, which, viewed in terms of the national economy, results from a higher level of employment. Against this background, it is confirmed that a slight loss of monetary value is ultimately an indicator of a functioning economy. According to abbreviationfinder, EMV stands for Expected Monetary Value.
MONEY SUPPLY (M0, M1, M2, M3)
Everyone has probably asked themselves how much money is in circulation in Germany. The central bank, which records the data in the form of the amount of money, has an overview of this. We’ll clarify what that is!
- The amount of money is the amount of money that a central bank aims for according to various aspects.
- It provides information on how much money is traveling where.
- The money supply is divided into four classes depending on availability: M0, M1, M2 and M3.
What is the amount of money?
The amount of money or the volume of money makes a statement about how much money is in an economy. However, it only includes money that is not owned by banks. This includes cash and money in bank accounts of, for example, companies and private individuals. It is monitored and controlled by the respective central bank – in Germany the European Central Bank is responsible for this .
The money supply is divided into four classes: M0, M1, M2, M3
In order to define the money supply more precisely, four classes are basically used: M0, M1, M2 and M3. The “M” stands for the English term “money”.
The 4 classes are based on the availability of money: The amounts of money M0 and M1 include money that is available daily, whereas M2 and M3 include money that is tied up for a longer period.
- All cash stocks that are not in the banking system are counted as part of the money supply M0.
- Money that is quickly available is assigned to group M1. In addition to cash from group M0, it also includes money that can be withdrawn from accounts on a daily basis (sight deposits such as overnight money ).
- The money supply M2 includes the money supply M1 plus deposits with an agreed term of up to two years (time deposits) as well as deposits with an agreed notice period of up to three months ( savings deposits ).
- The money stock M3 comprises the money stock M2 plus shares in money market funds and other money market papers as well as repurchase agreements and bonds with an original term of up to two years.
Why do you need the money supply?
The money supply is an important tool for keeping track of the market. This enables the central bank to ensure that goods and money are in the correct relationship and avoid excessive inflation . By having an overview of the available money, it can take targeted measures to stabilize and maintain the euro.