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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? 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. • A Store of Value – Something that keeps value if it is stored rather than used.
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? • 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 • 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 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.
