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Chapter 10 – Money and Banking
Cutler – Economics
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BELLRINGER NO BELLRINGER THIS WEEK RESUMES NEXT WEEK
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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
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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
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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
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Three Uses of Money Money as a unit of account
Means for comparing the values of goods and services Comparing prices between stores
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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
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Six Characteristics of Money
Durability Portability Divisibility Uniformity Limited Supply Acceptability
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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
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Six Characteristics of Money
Portability Ability to take money anywhere Transfer from one person to the next
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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
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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
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Six Characteristics of Money
Limited Supply Why isn’t sand valuable? Federal Reserve controls the “SUPPLY” of money
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Six Characteristics of Money
Acceptability People must be willing to take your money
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Sources of Money’s Value
Commodity Money Representative Money Fiat Money
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Sources of Money’s Value
Commodity Money Objects that have value in themselves and that are also used as money
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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
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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
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