18. money

Money!

- but it doesn’t grow on trees.

It makes the world go ‘round -

“The love of money is the root of all evil.” 1 Timothy 6:10

“The lack of money is the root of all evil.” G.B. Shaw

“The love of money is the root of all virtue.” G.B. Shaw

“Money is like muck, not good except to be spread.” Sir Francis Bacon

“Money is better than poverty, if only for financial reasons.” Woody Allen

“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t know” Will Smith

“Money often costs too much.” Ralph Waldo Emerson

Some money quotes

Money is anything people will accept.

what is money?

What is the difference between money and currency?

Money is the product of markets

It is defined by the function it performs (which we will see shortly)

“Money is a mental tool used for economic calculation that ingeniously enables each of us to communicate what we value in an exchange.”

Currency - on the other hand - is something that has changed considerably overtime. So... what makes a good currency? A currency must be...

Durable Divisible

Not easily copied

RecognizableAcceptedPortableHave a face value

greater than its actual value

Such currency is knows as fiat money

We accept it as money

because the

government says it’s money.

So what, then, is money?

1. Money is a medium of exchange- that is, it works as a vehicle for the exchange

of goods and services.- this eliminates the need for a “ double

coincidence of wants.”

vs.

2. Money is a store of value

- that is, it is a safe and accessible store of wealth as it maintains its purchasing power.

3. Money is a measure of value

- that is, it provides buyers and sellers with a unit of account, or pricing standards. All

products may be valued consistently against a common measure.

How is money measured? (just how much does Canada

have?)M1 = all Canadian currency in circulation + C$ demand deposits (chequing accounts). - most narrow definition - just $ in circulation.

M2 = M1 + all money in term deposits (savings accounts) and money market accounts. - key economic indicator (along with CPI) used to forecast inflation. M3 = M2 + money in long term deposits, money-market funds and foreign currency deposits of residents in Canada. - broadest measure - used to estimate entire money supply with an economy.

If not money...what?

The Barter System

system of exchanging goods (or services) for other goods (or services).

but - value still has to be assigned

value = what those involved think the goods are worth.

barter requires a double coincidence of wants

problem...

each party has to be interested in what the other party has to offer.

Ultimately, it is just easier to use money than to compare apples to oranges.