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What is money?. 11/8/2009. Money. Money can be anything that has these three things… A Medium of exchange – must determine value during an exchange Without money we must barter=trade A Unit of Account – a means of comparing the values of goods/services.

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What is money?


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Presentation Transcript
money
Money
  • Money can be anything that has these three things…
    • A Medium of exchange –must determine value during an exchange
      • Without money we must barter=trade
    • A Unit of Account – a means of comparing the values of goods/services.
    • A Store of Value – Something that keeps value if it is stored rather than used.
how do we decide what makes good money
How do we decide what makes “good” money?
  • Six characteristics of money – tell us how well something could serve as currency
    • Durability – Must be long lasting
    • Portability – must be easy to trade/keep with you
    • Divisibility – must be easily divided
    • Uniformity – must be easily classified
    • Limited Supply – Can’t be easily obtained
    • Acceptability – Everyone must agrees on it
why is money valuable
Why is money valuable?
  • Commodity Money – has another use other then $
    • Only seen in simple economies
    • Ex: Tobacco and cotton served as commodity money in the American colonies.
    • What characteristics do commodity money lack?
types of money and value
Types of money and value
  • Representative Money –money thastands for something else.
    • A sort of IOU
    • Ex: The US gov’t issued silver certificates that were “backed” by silver. You could exchange the silver certificate for silver at the bank.
types of money and value1
Types of money and value
  • Fiat Money – Has value because the gov’t says it is
    • Money used in the U.S.A.
    • Federal Reserve gives it value by limiting supply
    • Your money is useless
    • Gov’t issues Baruck’s instead of dollar.