Chapter 10 – Money and Banking Cutler – Economics

BELLRINGER NO BELLRINGER THIS WEEK RESUMES NEXT WEEK

Section 1 – Money The Three Uses of Money Sources of Money’s Value Medium of Exchange Unit of Account Store of Value 6 Characteristics of Money Durability Profitability Divisibility Uniformity Limited Supply Acceptability Sources of Money’s Value Commodity Money Representative Money Fiat Money

Three Uses of Money Money: anything that serves as a medium of exchange, unit of account, and a store of value Three Uses of Money Medium of exchange Unit of account Store of value

Three Uses of Money Medium of Exchange Anything that is used to determine value during the exchange of goods and services Alternative to a medium of exchange? Barter: direct exchange of one set of goods or services for another

Three Uses of Money Money as a unit of account Means for comparing the values of goods and services Comparing prices between stores

Three Uses of Money Money as a store of value Something that keeps its value if it is stored rather than used You don’t have to spend every dollar you take in You can put $ in savings and take it out when you need it at a later time

Six Characteristics of Money Durability Portability Divisibility Uniformity Limited Supply Acceptability

Six Characteristics of Money Durability Using coins instead of wheat, olive oil, or other items that can disintegrate over time Confused? Dollar bills can easily be replaced… Paper money can typically last at least a year in circulation

Six Characteristics of Money Portability Ability to take money anywhere Transfer from one person to the next

Six Characteristics of Money Divisibility Breaking money up into smaller denominations The $100 into 2 $50s or 5 $20s Using a $20 to pay for something that is only $5

Six Characteristics of Money Uniformity $1 is always $1 Dried fish as money? How much is a dried fish worth? Size of the dried fish

Six Characteristics of Money Limited Supply Why isn’t sand valuable? Federal Reserve controls the “SUPPLY” of money

Six Characteristics of Money Acceptability People must be willing to take your money

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

Sources of Money’s Value Commodity Money Objects that have value in themselves and that are also used as money

Sources of Money’s Value Representative Money Objects that have value because the holder can exchange them form something of value Giving someone and IOU Gold or Silver Certificates

Sources of Money’s Value Fiat Money Money that has value because the government has ordered that it is an acceptable means to pay debts