1. Chapter 10 : Lesson 1 The Evolution, Functions, and Characteristics of Money

2. Essential Question: Why did money replace the barter system?

3. Before money we had Barter
Barter: is a voluntary exchange of items which are not alike or set in value
Barter is alive and well, but has drawbacks

4. Different types of Barter Items

5. Drawbacks of Barter Uncertain connection of producers & consumers
Uncertain valuation of barter goods
Indivisibility of some barter goods
Storage of excess

7. Commodity Money: money that had an alternative use as an economic good:
Example: gunpowder, flour, corn, musket ball, Gold, and silver

8. Fiat Money: money by the government decree; has no alternative value or use as a commodity

9. Specie: money in the form of gold or silver coins

11. Monetary Unit: Standard unit of currency in a country’s money supply; American dollar, British pound, ect..

12. Four Characteristics of Money

13. 1. Portable Light and Flexible Metals, Cotton, Plastic
Yap Islander Coins

14. Giant stone disks were used as money on the Yap Islands
Giant stone disks were used as money on the Yap Islands. Some disks were 12ft wide. 14

15. 2. Durable Average life of a $1 bill 18 months
Average life of a $1 coin
13 years!
Made of metals, cotton, plastic,

16. 3. Divisible Available in various denominations
Mexico= Pesos & Centavos
Russia= Rubles & Kopeks
UK= Pounds & Pence
India= Rupees & Paistres
China= Yuan & Jiao

17. 4. Limited Supply Small supply= High Value Old bills shredded
Counterfeits increase Q Supply

24. Three Functions of Money
Money Does…
Medium of exchange
I trade 1 hour labor for $31.25/hr + benefits
Measure of Value
I check prices at several stores
Store of Value
I have $2000 in my savings

25. M1-M3 So where is the most money in the banking system? M1
Cash and Cash instruments M2
Small Value, Short Time Deposits M3
Large Value, Longer Time Deposits (best rates of interest

26. 3 Types of Money
Liquidity- ease with which an asset can be accessed and converted into cash (liquidized)
M1 (High Liquidity) - Coins, Currency, and Checkable deposits (personal and corporate checking accounts).
In general, this is the MONEY SUPPLY
M2 (Medium Liquidity) - M1 plus savings deposits (money market accounts), time deposits (CDs = certificates of deposit), and Mutual Funds below $100K.
M3 (Low Liquidity) - M2 plus time deposits above $100K.

28. Review Question:
Chapter 10 : Lesson 1
Read pages and answer Review Questions on page 281. Hand in Google Class Room.