Do Now What do the following terms have to do with money? Goods Services Scarcity Capital.

Do Now

• What do the following terms have to do with money?

• Goods• Services• Scarcity• Capital

What is Money?

Money

• 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

The Three Uses of Money• 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

The Three Uses of Money

• 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???

The Three Uses of Money

• 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

What makes money valuable?

Sources of Money’s Value

• Commodity Money: objects that have value in and of themselves, and that are also used as money

• Ex: salt, cattle, precious stones

Sources of Money’s Value

• 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

Sources of Money’s Value

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

– Legal tender