2. Table of Contents Access Prior Knowledge New Information Set Goals
Activity
Conclusion
A Game of Barter
“Money” Targets
Functions of Money
The Basics of
Money
“Money” Targets
Types of Money
Characteristics M1 M2 M3

3. A Game of Barter
Each student will be given two cards. One will be a “Have” card, which tells you the item you currently possess. The other will be a “Want” card, which lists the item you are attempting to acquire. Use your “Have” card to trade with your classmates. Be sure that you always keep the “Want” card that was assigned to you. When your “Have” card is the same as your “Want” card, you may return to your seat. Keep track of each transaction in the table below.
Trade
Have Card
Initial 1 2 3 4 5 6 7 8 9 10
Refer to the Lesson Plan document for instructions on how to make this Warm Up Activity a success. If you are projecting this slideshow onto a writeable surface (such as a whiteboard or SmartBoard), you can model how to fill out this table by writing directly on the board in the appropriate table cells.

4. A Game of Barter CONCLUSION
1) How many trades did it take for you to match your “Want” with your “Have?”
2) Were there some class members who were unable to match their “Want” and “Have?” If so, why do you think this was the case?
3) Barter is defined as the “direct exchange of a good or service for another good or service without the use of money.” What are the advantages of using barter instead of using money?
4) What are the disadvantages of using barter instead of using money?
5) Money is generally considered better than barter. Using what you observed in this simulation, why do you think this is the case?
Help students answer these questions. It will likely be necessary for you to poll the class to find out if anyone was unable to match their want with their have. Also, it is important to point out that barter needs a double coincidence of wants in order to work. Money does not have this problem. For further sample answers, refer to “A Game of Barter Key.” If projecting this slideshow onto a writeable surface, you can write answers directly onto the board in the space provided.

5. “Money” Targets
Knowledge 1 Understand the functions and types of money.
Knowledge 2 Understand how the money supply is classified into different categories based on liquidity.

6. Functions of Money
In order for money to be useful, it must serve the following three functions.

7. Functions of Money
In order for money to be useful, it must serve the following three functions.
1) Medium of Exchange
Something people use for the purpose of trading, rather than for consuming.
The U.S. dollar is currently one of the most widely used mediums of exchange in the world.

8. Functions of Money
In order for money to be useful, it must serve the following three functions.
1) Medium of Exchange
Something people use for the purpose of trading, rather than for consuming.
2) Store of Value
Money must maintain its purchasing power over time.
One item that was used in the past as money was barley. After a short time, however, it could spoil, causing it to lose value.

9. Functions of Money
In order for money to be useful, it must serve the following three functions.
1) Medium of Exchange
Something people use for the purpose of trading, rather than for consuming.
2) Store of Value
Money must maintain its purchasing power over time.
3) Unit of Account
Money must be measurable and efficient for making economic comparisons.
By listing prices in dollars, as opposed to some other form, consumers are easily able to understand the opportunity cost of purchasing the item.

10. Types of Money
All of the different types of money that have existed throughout history can be classified into one of these three categories.

11. Types of Money
All of the different types of money that have existed throughout history can be classified into one of these three categories.
1) Commodity Money
A good that is used as money that also has value in and of itself.
Many items have been used as commodity money throughout history. Some prominent examples include gold, silver, salt, and cigarettes.

12. Types of Money
All of the different types of money that have existed throughout history can be classified into one of these three categories.
1) Commodity Money
A good that is used as money that also has value in and of itself.
2) Representative Money
Money that has no intrinsic value, but can be exchanged for valuable goods.
Note that these are Silver Certificates. Instead of saying “Federal Reserve Note” at the top, these bills say “Silver Certificate.” Notice that the following phrase appears across the top and continues on the bottom: “This certifies that there is on deposit in the Treasury of the United States of America one (five) dollar(s) in silver payable to the bearer on demand.” Although the U.S. government will still honor the promise written on these bills, it is important for students to understand that the United States has not used representative money since 1971.
In the past, the United States was on both a gold standard and a silver standard. Paper money could be exchanged for an equal value in gold or silver.
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13. Types of Money
All of the different types of money that have existed throughout history can be classified into one of these three categories.
1) Commodity Money
A good that is used as money that also has value in and of itself.
2) Representative Money
Money that has no intrinsic value, but can be exchanged for valuable goods.
3) Fiat Money
Money that only has value because of a government order.
The U.S. dollar today is not backed by any commodity. It is a bank note issued by the central bank of the United States, the Federal Reserve.

14. Characteristics
The best types of money tend to have the following four characteristics.
Other characteristics of money are often cited, including Acceptable, Stable in Value, and Scarce. These other characteristics have been omitted for simplicity.

15. Characteristics
The best types of money tend to have the following four characteristics.
1) Portable
To be a convenient medium of exchange, money must be easily carried from place to place.
On some islands in Micronesia, large stones weighing several tons were used as money, but this is obviously not realistic in today’s economy.

16. Characteristics
The best types of money tend to have the following four characteristics.
1) Portable
To be a convenient medium of exchange, money must be easily carried from place to place.
2) Durable
To be a store of value, money must not decompose over time.
Things such as agricultural products and salt do not store well. Even though they have been used as money in the past, they do not work very well.

17. Characteristics
The best types of money tend to have the following four characteristics.
1) Portable
To be a convenient medium of exchange, money must be easily carried from place to place.
2) Durable
To be a store of value, money must not decompose over time.
3) Divisible
To be a unit of account, money must break into smaller denominations.
Even though the U.S. used to have denominations of $500, $1000, and $10000, today it is sufficient to just have $1, $2, $5, $10, $20, $50, and $100.

18. Characteristics
The best types of money tend to have the following four characteristics.
1) Portable
To be a convenient medium of exchange, money must be easily carried from place to place.
2) Durable
To be a store of value, money must not decompose over time.
3) Divisible
To be a unit of account, money must break into smaller denominations.
Security features of the modern U.S. $20 bill include micro-printing, watermarks, color-shifting metallic flecks, a mylar security thread, and others.
4) Difficult to Counterfeit
Representative and fiat money will hold no value if it is easily reproduced.

19. M1
The U.S. money supply is divided into three categories based on how easy it is to turn the asset into cash (liquidity). The M1 money supply is the most liquid.

20. M1
The U.S. money supply is divided into three categories based on how easy it is to turn the asset into cash (liquidity). The M1 money supply is the most liquid.
1) Currency in circulation
Includes all paper money and coins not stored in banks.

21. M1
The U.S. money supply is divided into three categories based on how easy it is to turn the asset into cash (liquidity). The M1 money supply is the most liquid.
1) Currency in circulation
Includes all paper money and coins not stored in banks.
2) Checkable Bank Deposits
Bank accounts that consumers write checks (or use a debit card) from.

22. M1
The U.S. money supply is divided into three categories based on how easy it is to turn the asset into cash (liquidity). The M1 money supply is the most liquid.
1) Currency in circulation
Includes all paper money and coins not stored in banks.
2) Checkable Bank Deposits
Bank accounts that consumers write checks (or use a debit card) from.
3) Traveler’s Checks
These are issued to consumers from a bank and can be used similar to cash.

23. M2
The M2 money supply includes all M1 money and it adds three new categories of money. These are near-moneys that can easily be converted into cash.
Emphasize that M2 contains all of M1.

24. M2
The M2 money supply includes all M1 money and it adds three new categories of money. These are near-moneys that can easily be converted into cash.
1) Savings Deposits
Accounts at banks that pay interest but cannot be used directly as money.

25. M2
The M2 money supply includes all M1 money and it adds three new categories of money. These are near-moneys that can easily be converted into cash.
1) Savings Deposits
Accounts at banks that pay interest but cannot be used directly as money.
2) Money Market Funds
Short-term investment funds that are low-risk and low-return.

26. M2
The M2 money supply includes all M1 money and it adds three new categories of money. These are near-moneys that can easily be converted into cash.
1) Savings Deposits
Accounts at banks that pay interest but cannot be used directly as money.
2) Money Market Funds
Short-term investment funds that are low-risk and low-return.
3) Time Deposits
Savings account or CD that accrues interest for a fixed length of time.

27. M3
The M3 money supply includes all M2 money and M1 money and adds more categories. M3 money is the least liquid definition of money in the U.S. M3 M2 M1
Emphasize that M3 contains all of M2 and M1, as depicted in the illustration. Students can copy the illustration on their note sheets, if desired.

28. M3
The M3 money supply includes all M2 money and M1 money and adds more categories. M3 money is the least liquid definition of money in the U.S. M3 M2 M1
1) M3 adds the categories of institutional money funds, large time deposits, repurchase agreements, and Eurodollars.

29. M3
The M3 money supply includes all M2 money and M1 money and adds more categories. M3 money is the least liquid definition of money in the U.S. M3 M2 M1
1) M3 adds the categories of institutional money funds, large time deposits, repurchase agreements, and Eurodollars.
2) Different countries define the money supply differently.

30. M3
The M3 money supply includes all M2 money and M1 money and adds more categories. M3 money is the least liquid definition of money in the U.S. M3 M2 M1
1) M3 adds the categories of institutional money funds, large time deposits, repurchase agreements, and Eurodollars.
2) Different countries define the money supply differently.
The Federal Reserve stopped keeping track of M3 data in 2006 because it was costly to collect and was not used in their estimates about the economy.
3) The Federal Reserve only keeps track of M1 and M2.

31. The Basics of Money CHARACTERISTICS OF MONEY
Some characteristics of money are listed down the left-hand column in the table. Listed across the top are different items that have been used as money in the past. Rate each item on a scale of 1 to 3 for each characteristic. A rating of 1 means the item performs that function poorly, and a rating of 3 means the item performs that function very well.
THE MONEY SUPPLY AND LIQUIDITY
The box below lists many different forms that money takes in the United States economy. Each one is either a part of M1 or M2. List each under the proper heading below, and put them in order from most liquid to least liquid (in your opinion).
Use the chart to list the advantages and disadvantages of holding money in a liquid state.
These are the directions for the Class Activity that is included in the download. You may differentiate instruction by using the three different versions, or you may decide to simply use just one version for the whole class.

32. “Money” Targets
Knowledge 1 Understand the functions and types of money.
Knowledge 2 Understand how the money supply is classified into different categories based on liquidity.

33. Types of Money
Note that this is a Silver Certificates. Instead of saying “Federal Reserve Note” at the top, this bill says “Silver Certificate.” Notice that the following phrase appears across the top and continues on the bottom: “This certifies that there is on deposit in the Treasury of the United States of America five dollars in silver payable to the bearer on demand.” Although the U.S. government will still honor the promise written on this bill, it is important for students to understand that the United States has not used representative money since 1971.
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34. Resources
Data regarding M1 and M2 money supply from May 2013