Presentation on theme: "The Evolution, Functions and Characteristics of Money"— Presentation transcript:
1 The Evolution, Functions and Characteristics of Money AP Economics
2 The Evolution of MoneyBarter Economy-moneyless economy that relies on trade or barterProblems-products some people offer are not always acceptable or easy to divide for paymentBenefits-“mutual coincidence of wants” when two people want exactly what the other has and are willing to trade what they have for it
3 Early MoneyEarly Societies developed forms of proto-money which were commodities that everyone agreed to accept in tradeExamples:Aztecs-Cacao Beans (aka cocoa beans)Norwegians-ButterColonists- Tobacco leaves, animal hidesChina, India, Thailand, and West Africa-Cowrie shells
4 What would you trade?If we did not have U.S. currency today, what do you feel we as a society could trade as proto-money?
5 Money in Primitive Societies Commodity Money- money that has an alternative use as an economic good, or commodity Fiat Money- money by governmental decree
6 Money in Colonial America Both fiat money and commodity money were used in the original thirteen colonies.Commodity money in America was used to settle debts, make purchases, or for personal consumptionIn Massachusetts the local government gave wampum shells a monetary value
7 Early Paper CurrencyEarly paper money was backed by gold or silver deposits, served as currency for immediate areaStates printed money in form of tax anticipation notes which were used to pay salaries, buy supplies and meet other expenditures until they received taxes and redeemed the notes1775 Continental Congress printed money that was not backed by gold or silverIssues??
8 Specie in the ColoniesSpecie- money in the form of gold or silver coinsMost desirable form of money because of mineral content, and limited supply1776 there was $12million dollars worth of coin vs. $ 500 million in paper money
9 The Four Characteristics of Money Portability- can be easily transferred from one person to another, and makes the exchange of money for products easierDurable- does not deteriorate when handled and can be easily replacedDivisible- should be able to be broken down into smaller units so that people can use only as much as needed for a transactionLimited Supply- can not have to much of something because then it becomes worthless
10 So does our money meet all the necessary requirements? Portability-light weight, convenient, easily transferableDurable-Coins tend to last over 20 years, and paper currency lasts 18 months in circulation before being replacedDivisible-Penny is small enough for almost all purchases, and can write checks for exact amountsLimited Supply/Stability-Fluctuates, grew at a rate of percent a year in 1970’s, but for the most part there is a stable and limited supply
11 Which of these items meet the four characteristics of money?
12 Functions of MoneyMedium of Exchange- money or other substance generally accepted as payment for goods or servicesMeasure of Value- function of money that allows it to serve as a common way to express value ex. Price TagsStore of Value- allows people to preserve value for future useThis allows a period of time to pass between earning and spending an income
13 Different Definitions for the Money Supply M1- component of the money supply relating to money’s role as a medium of exchangeCurrency (Coins and Paper Money)All checkable deposits (travelers checks, DDAs/ checking account)M2- component of the money supply relating to money’s role as a store of valueSavings (savings deposit & money market deposit account)Small time deposits (6 mo. CD)Money market funds (mutual fund)
14 Today’s MoneyPrior Knowledge – what back’s today’s currency in the U.S.?It is not gold and silver!- Today, the GDP helps back our money & its relative scarcity (this is why counterfeiting currency is a federal offense for a fine of up to $250,000 and a prison sentence of up to twenty years for the counterfeiting of U.S. obligations and securities (and no you can’t pay in counterfeited money you made)The FDIC backs our deposits today up to $250,000 (M1 / M2)