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• 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
