What is Money?
Durability
must withstand physical wear and tear that is a part of being used over and over again
What are the advantages of money?
- Money acts as a medium of exchange, making trade easier - Money encourages specialization by decreasing the costs for exchange - Money acts as a store of value, making it easier to save and invest - Money acts as a measure of value, making it easier to compare the value of goods and services
What are the six characteristics of money?
1) Durability 2) Portability 3) Divisibility 4) Uniformity 5) Limited Supply 6) Acceptability
How does money make it easier to compare the value of goods and services?
Money acts as a measure of value
How does money make trade easier?
Money acts as a medium of exchange
How does money make it easier to save and invest?
Money acts as a store of value
What does decreasing the costs of exchange encourage?
Specialization
Money
anything widely accepted as final payment for goods and services
Acceptability
everyone must be able to use the object meant to be used as money as a medium of exchange
Fiat Money
has value because the government has declared that it is acceptable for paying debt (ex. cash)
Commodity Money
has value in itself (ex. gold coin)
Basic Money Supply (in the US)
is made up of currency, coins, and checking account deposits
Divisibility
money must be easily divided into smaller denominations
Uniformity
money must be uniformed, easy to count and measure
Portability
people need to be able to take money with them from place to place
Limited Supply
the money supply must be kept in limited supply
What does money make it easier to do?
to trade, borrow, save, invest, and compare the value of goods and services