Money Supply

Money is a medium of exchange. It allows two people to trade without needing what the other wants. This can come in all types and forms. So long as people trust and accept a certain form of money; it can be used as a medium of exchange. For example, gold was historically used as a form of monies. Farmers would go to market and sell their cows in exchange for a certain amount of gold. This gold could then be exchanged by the farmer for a loaf of bread from the baker.

We can define Commodity money as a physical good that consumers universally use to trade for other goods. In other words, it is like the money we use today, but has an actual value.

Fiat money is a currency without any underlying value, but which value is derived by government. In other words, it is a form of currency that only holds value because of government enforcement.