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Money has three basic functions
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 as a medium of exchange, a standard of value, a store of value
Money also has six main characteristics
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 acceptability scarcity portability durability divisibility
 uniformity
Commodity money was used for thousands of years before the creation of banks.
Banknotes replaced commodity money and were eventually replaced by fiat money.

 The money supply is made up of these assets:
 currency
 checkable deposits
 traveler’s checks
 Credit cards and debit cards can be used to make
purchases, but they are not part of the money supply.

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Saving is any form of putting money aside for later use.
Banks are financial institutions that provide two main services:
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 receiving deposits from savers making loans to borrowers
Banks charge interest on the loan principal. They profit by charging more interest on loans than they pay on deposits.
Banks are required to keep a fraction of deposits in reserve and can make loans with the rest.
The Federal Reserve System regulates and manages the nation’s banks.

 Saving helps the economy grow by supplying the funds that financial institutions lend out for business investment.
 Putting money aside today can help one reach future goals, weather hard times, and fund retirement.
 Retirement is often funded by three sources of money:
 Social Security
 company retirement plans
 personal savings

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Investing involves using money that has been saved to
earn more money, usually through compounding.
Investment options have different risks and returns.
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Government bonds: low risk, low rate of return
Corporate bonds: higher risk and rate of return than government bonds
Stocks: historically high rate of return, with high risk
Mutual funds: diversification keeps risk lower than with
individual stocks or bonds, with a relatively high rate of return
Asset allocation involves dividing the assets in one’s portfolio among different types of investments.

 Entrepreneurs play a critical role in the economy because they start businesses to meet consumer demand, create jobs, and spur economic growth.
 Running a business can bring great rewards, such as personal satisfaction and being one’s own boss.
 Entrepreneurs also face challenges, such as the risk of failure.

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A sole proprietorship is a business owned and managed by
one person. The owner makes the profits and is responsible for the debts.
Advantages:
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 ease of start-up and closing few restrictions
full decision-making power profits individual taxation
Disadvantages:
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 unlimited liability,
limited growth potential limited life.

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In a partnership, two or more owners own and operate a
business together. In most cases, they share the profits and the liability.
Advantages:
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 ease of start-up few restrictions shared decision-making power specialization by partners individual taxation increased growth potential
Disadvantages:
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 unlimited liability for some partners conflict between partners keeping continuity if a partner leaves

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A corporation is a business owned by shareholders who have limited liability in
the firm’s debts. It is a legal entity that can conduct business affairs in its name.
Advantages:
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 limited liability greater growth potential
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 professional management long life
Disadvantages:
 complexity of start-up loss of owner control
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greater government regulation tax on profits at the corporate
 shareholder levels
A multinational corporation operates in more than one country. It offers such advantages as access to global markets and diversification of operations.

 In a business franchise, a parent company (franchiser)
grants to an independent business owner (franchisee) the exclusive right to use its trade name and sell its products in a designated location.
 A cooperative is a business that is owned and operated
by a group of individuals for their shared benefit.
Examples include credit unions and agricultural co-ops.
 A nonprofit organization functions mostly like a
business, though it does not operate to make a profit. It is established to support a particular private or public goal.

 In a free enterprise system, businesses have many of the rights individuals have, such as freedom of speech.
They also have legal obligations, such as paying taxes.
 Business ethics are the notions of right and wrong that guide the decisions and actions of a company and its employees.
 Studies show that consumers reward good corporate conduct and respond unfavorably to unethical behavior.

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In recent decades, an influx of women and minorities has resulted in a larger and more diverse labor force.
Labor force consists of those people age 16 and over who have jobs or who are actively looking for work.
 The labor force does not include; unpaid workers (homemakers, volunteers) active members of the military, or prison inmates.
Job growth has shifted from manufacturing to the service sector.
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Training and technology have increased worker productivity
Knowledge workers—people like financial experts who develop or apply information in the workplace—have become increasingly important.
Other trends changing the labor market include
 Outsourcing (the practice of using outside contractors instead of staff), temping, and telecommuting.
Globalization has impacted the U.S. labor force by offshoring some
jobs to other countries, inshoring some jobs to the United States, and increasing global competition.

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Wage rates reflect various factors, but mainly depend on the skill level of workers and the value of what workers produce. Much like the equilibrium price of goods and services, an equilibrium wage results when labor
demand and labor supply come into balance.
Other factors that influence wages include:
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 minimum wage laws working conditions location cost of living fringe benefits such as health insurance (increases the overall coast to employers)
Foreign competition
A difference in wages earned by various groups in society, called the wage gap, exists for a variety of reasons.
Nondiscrimination laws and affirmative action programs have attempted to decrease wage discrimination and reduce this gap by increasing the presence of historically underrepresented groups.

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People should develop their human capital throughout their lifetimes. They can start this process by identifying their abilities, interests, and aspirations.
Obtaining a good education is an important step in building human capital, as is securing necessary certification or licensing.
Through work experience and on-the-job training, people can gain vital skills and knowledge that can be applied in future employment.
Some methods of developing human capital are not easily quantifiable but are still very important. These include:
 having high personal standards
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 exhibiting a strong work ethic building a network of friends and colleagues

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Historically, unions have helped workers defend their rights and improve their pay and working conditions.
 Often this is achieved through collective bargaining in which workers, represented by their union, negotiate their conditions of employment with their employers. Collective bargaining was most supported through New Deal Legislation in the 1930’s.
A decline in manufacturing jobs and right-to-work laws that
make it illegal to require union membership have led to a decrease in union membership since the 1970s.
However, unions still help many workers achieve concrete gains in the workplace.
Although men and women are equal, women tend to earn less than men due to their careers being interrupted for families.