Money, Banking & Finance Section 1: Money

What is Money? You probably think of money as the coins and bills in your wallet or the paycheck you receive from work.

Three Uses of Money A medium of exchange A unit of account A store of value

Money as a Medium of Exchange Anything that is used to determine value during the exchange of goods and services.

Money as a Unit of Account Means for comparing values of goods and services.

Money as a Store of Value Something that keeps its value if it is stored rather than used.

The coins and paper bills used as money. Currency The coins and paper bills used as money.

Six Characteristics of Money Durability Portability Divisibility Uniformity Limited Supply Acceptability

Durability Objects used as money must be able to withstand the physical wear and tear that comes along with being used over and over again.

Portability People need to be able to take money with them as they go about their daily business.

Divisibility Must be easily divided into small denominations.

Uniformity Any two units of money must be the same in terms of what they will buy.

The supply of money in circulation must be controlled. Limited Supply The supply of money in circulation must be controlled.

Acceptability Everyone in the economy must be able to trade the money for goods and services.

Sources of Money’s Value Commodity Money Representative Money Fiat Money

Objects that have value themselves and that are also used as money. Commodity Money Objects that have value themselves and that are also used as money.

Representative Money Objects that have value because the holder can exchange them for something else of value.

Fiat Money Money that has value because the government has decreed that it is legal tender.