Money!
Money
• Medium of Exchange = anything that is used
to determine value during the exchange of a
good or service.
• Money = anything that serves as a medium of
exchange, unit of account, or store of value.
• Unit of Account = money serves as a means of
comparing values on goods and services (we
relate $1 to 1 candy bar).
• Store of Value – keeps its value if you hold on
to it instead of spending it (you store it)
Money
• Different forms of money in existence today
• Currency = paper and coin money used in
societies today
• Societies in the past would have also used
gold, silver, fur, stones as currency, however in
today’s standard these items would not serve
as a function of money.
• They do not meet the characteristics of money
Money
• Characteristics of Money
• There are SIX key characteristics that help
determine what counts as MONEY
• 1. Durability = an object (such as our current
currency , paper & coin) can withstand physical
wear and tear that come with being used over
and over again.
• Money that is not durable cannot be trusted to
serve as a store of value
• Even though paper money can tear, it is still very
durable in the sense that it can be washed,
change from hand to hand several times, stay in
storage and not waste away.
Money (characteristics con’t)
• 2. Portability = people are able to carry the money
with them.
• It can easily be transferred to another person
• Paper and coins are very portable
• Much easier than toting around gold bars, furs, or
gemstones.
• 3. Divisibility = can be easily divided into lower
denominations or units
• You only use the exact necessary amount
• Paper and coins are easily divided into lower amounts
Money (characteristics con’t)
• 4. Uniformity = Units of money must count as the same.
• Creates an accurate way of pricing
• A $1 will always be the same as another $1 and will get you
only a $1 worth of goods/services – no more or no less.
• 5. Limited Supply = by keeping the supply limited it helps
to keep the value of the currency.
• Without a limited supply people could charge any amount
for goods/services because there would be unlimited
amounts of money to purchase
• It would be “fake”
• 6. Acceptability = every in the economy must be able to
exchange your currency.
• A store owner will accept our paper and coin money,
because they know they can use that money to purchase
other goods/services
Money
• Why is paper/coin money accepted?
• It is actually referred to as FLAT money
• Flat Money = called “legal tender” b/c the Government
has declared that it will be accepted to pay off debts.
• Flat Money is simply backed by the governments
promise that it is accepted as currency.
• Take out a piece of money
• What do we use prior to paper/coin currency?
• A system called the Barter System
• Barter System = the exchange of a good/services for a
different good/services
• Common in the U.S. until the late 1800’s
• Still common in African and Latin countries