• What do the following terms have to do with money?
• Goods
• Services
• Scarcity
• Capital

• Money: serves as a medium of exchange, a unit of account, and a store of value
– Provides the means for comparing values of goods and services, and serves as a store of value

• A Medium of Exchange is anything that is used to determine value during the exchange of goods and services
• Value
– Without money, people may acquire goods and services through the barter system: exchange one set of goods and services for another
– Still used in traditional economies in many parts of the world

• Money as a Unit of Account is a means of comparing the values of goods and services
• Ex: comparison shopping from store to store
• What’s it worth to you???

• Money also serves as a Store of
Value : something that keeps value if stored, rather than spent
• Ex: savings

The Six Characteristics of Money
1. Durability : objects used as money must withstand the physical wear and tear that comes with being used over and over again

The Six Characteristics of Money
2. Portability : people need to be able to take money with them as they go about their day – must be able to transfer money easily from one person to another

The Six Characteristics of Money
3. Divisibility : must be easily divided into smaller units of value
(denominations)

The Six Characteristics of Money
4. Uniformity : people must be able to count and measure money accurately

The Six Characteristics of Money
5. Limited Supply :
In the US, the
Federal Reserve controls the supply of money in circulation

The Six Characteristics of Money
6. Acceptability : everyone in an economy must be able to take the objects that serve as money and exchange them for goods and services

• Commodity Money : objects that have value in and of themselves, and that are also used as money
• Ex: salt, cattle, precious stones

• Representative Money : objects that have value because the holder can exchange them for something else of value
• Ex: gold or silver
• Specie: coined money, usually gold or silver, used to back paper money

• Fiat Money : objects that have value because a government has decreed that they are an acceptable means to pay debts
– Legal tender