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Published bySheila Flynn Modified over 9 years ago
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What is Money? Economies have evolved into the use of money because Money reduces transaction costs and time. The “double coincidence of wants” is too difficult to maintain over time.
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Functions of Money A medium of exchange Measure of value or unit of accounting Store of value
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Characteristics of Money 1.Durable = does not wear out quickly 2.Portable = is easily carried 3. Divisible = easily divided into smaller denominations 4. Scarce = limited 5.Uniformity = any two units of money are the same in terms of what they will buy 6. Acceptable = everyone must be able to use the money for transactions
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Types of Money Commodity Money = Money has value as a commodity, or good, aside from their value as money. Example: cattle for food and transportation; gems used for jewelry Representative Money = Money that is backed by some commodity, such as gold or silver. Example: Money can be exchanged or redeemed for gold or silver Fiat Money = Face value of money is mandated by the government, declared legal tender.
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The United States has “fiat” money = face value of money is mandated by the government, declared legal tender. Fiat is Latin for “let it be done” Our money is backed by trust, not gold or silver
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The Bureau of Engraving and Printing and part of the United States Treasury Department, prints all Federal Reserve Notes (U.S. currency) in six denominations – $1, $5, $10, $20, $50, and $100. FYI: Before WWII there were $500, $1,000, $5,000 and $10,000 denominations. The $2 bill can still be found in circulation and is legal tender.
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