Money, Banking, Saving, and Investing Unit 8 Essential Question: What is money and how do economists measure it?

What is money? Brief history Has been many things – gold, silver, salt, shells, furs, beads, tobacco, whiskey, rocks This is commodity money Renaissance – banks emerge as safe place to store gold…paper banknotes were given This is commodity-backed money Governments began to issue paper money, that was NOT backed by anything, called fiat money What matters?  trust

Cont. Three functions of money: Way to exchange – it’s easier than barter Standard of value – $1 = $1 (not so clear with barter) Store of value – it holds value over time Six characteristics of money (SAPDUD): Scarcity – only so much Acceptability – trust matters Portability – able to carry it Durability – must hold up Uniformity – $1 is $1 Divisibility – can divide it

Money today Money supply M1 = liquid assets (cash or easily switched to cash) M1  Cash, checking deposits, travelers’ checks Savings are “near-money”, not included in M1 M2 = M1 + $ saved Credit card = promise to pay in future Debit card = immediately deducted from a bank account

Saving & Investing Ways to save Piggy bank – safe(?), zero interest Bank – safe, very low interest (Rule of 72…how long ‘til $ doubles?…72/interest rate) Social security – government sponsored pension 401(k) – job sponsored “piggy bank”, matched by job(?), tax benefits Personal savings Can be an IRA (individual retirement account) Can be investments Bonds – government-issued “I.O.U.s” – safe, okay interest Stocks – shares of a company – risky(?), highest payout historically Mutual funds – packages of many stocks; it’s diversified, safer, steadier