Section 1: The Functions and Characteristics of Money.

Section 1: The Functions and Characteristics of

Money

Cattle, Chattle, Capital- all from same root

Sal (Salt) Salary

Silver functioned as money in Mesopotamia. It acted as a means of exchange, a way to store wealth, and a way to define value

"The average well to do woman wore golden earrings (sometimes large) and silver rings on the arms and the feet. Those silver rings have a standard weight (5 shekels...) identical with standard fractions of the brideprice, and it is possible that the rings actually represented the price paid.""Women in Mesopotamia," by M. Stol Journal of the Economic and Social History of the Orient, Vol. 38, No. 2, Women's History (1995), pp. 123-144.[Bolding, mine.]

The Aztecs of Central America used cacao beans, from which chocolate is made, as money. Prices varied from a few beans for a piece of fruit to several thousand for an enslaved person.

Aztec merchants had to take care when selling expensive items. Payment usually came stored in sacks, and the sacks might contain counterfeit money- bean husks filled with mud.

Silver, gold, wheat, barley, grain, cattle, beans, coins, and now paper

Weights and measures establish value

When people pay a certain amount of money for something, they expect the value of what they get in return to be equal (Baker’s Dozen)

Medium of exchange Unit of Accounting Store of value

Use of money in exchange for goods or services

Use of money as a yardstick (measure) for comparing the values of goods and services in relation to one another.

Ex.: If one i-pod costs more than another, the indication is that the more expensive one is a better product

Use of money to store purchasing power for later use.

Why is this function of money important?

(Hint: it’s why paper money/ durable goods work better as money)

Anything that people are willing to exchange/ accept in exchange for goods. See exs. Above.

Durable, portable, divisible, stable in value, scarce, accepted.

Commodity Money Representative money Fiat Money legal tender

A medium of exchange such as cattle or gems that have value aside from being money

Money backed by- or exchangeable for- a valuable item such as silver or gold.

Money that has value because a government fiat, or order, has established it as acceptable for payments or debts. Hence, fake money is counter- fiat, or counterfeit.

Throughout the history of the US, Americans have used all kinds of money

During the Civil War, the Federal Govt. finally set up a uniform currency for the country

In order to regulate the money supply, Congress established the Federal Reserve System in 1913. The Federal Reserve became the nation’s central bank, issuing federal reserve notes, the currency we use today

In 1934, during the Great Depression, the Federal Government switched from a gold standard to a fiat money standard

Today, banking has been transformed by electronics- Electronic Funds Transfer, ATM’s, and Internet banking

Money and Near Moneys• Currency• Checks• Credit cards and Debit Cards• Near Moneys

Money you physically hold

Issued by the bank, they can be used to transfer money to someone else without physically handing them currency

Credit Card- A card issued to you by a bank that is essentially loaning you money to pay someone else at a price (interest rate)

Debit Card- A card that is issued to you by your bank in the place of a check book. You use it to electronically transfer funds to the company that you are purchasing goods or services from.

Money value held in stocks or savings accounts that can be easily accessed to get money to pay your bills

Very hard to calculate because money is always in a state of flux

M1= money that can be spent immediately and against which checks can be written

M2= M1+near moneys