Money, money, money….Money!

Money makes the world go round… Money is anything that serves as a medium of exchange…so if you “buy” your friends twinkie with two ho-hos, your money is the ho-ho. A medium of exchange is anything that is used to determine value during the exchange of goods and services. – i.e. one twinkie is valued at two ho-hos – Can be difficult if you can’t find someone willing to sell you twinkies in exchange for

Money as a Unit of Account Money provides a way of comparing goods and services. A jacket for $70 verses at jacket for $30

Money as a Store of Value If you want to buy a video game consul, but don’t have enough money right now, you can save it. The money you save will be worth the same amount latter….well, not counting inflation, which we’ll talk about latter.

Currency: anything used as money – Coins – Paper – Cattle – Furs – Fish – Precious stones – Gold – Tulips – Silver – Etc.

6 Characteristics of Money 1.Durability – must last a long time, can’t wear out. 2.Portability – must be easily carried (hard to take a cow with you to the market) 3.Divisibility – must be easily divided into smaller amounts (come to think of it, it’s hard to divide a cow too)

6 Characteristics of Money 4. Uniformity – must be the same in terms of what they will buy (cows can be different sizes, not accurate) 5. Limited Supply – must have some control over amount (if you used pebbles, they would be worthless) 6. Acceptability – everyone must be willing to exchange

Commodity Money An object that is considered money: – Cattle – Salt – Tulips – Precious stones

Representative Money A type of money that is backed up by something of value. Example #1: Your brother gives you an IOU to do all your chores. The piece of paper is worth nothing, but the promise which the piece of paper can be exchanged is worth something. Example #2: The United States was for a long time on the “gold standard” this meant that money could be exchanged for gold.

Representative Money This has it’s problems… If a government runs out of silver or gold coins (specie) to exchange for the money, it becomes worthless. If a government does this, they have to have massive supplies of gold and silver. US government stopped issuing these in the 1930’s

Fiat Money Money that is valuable just because the government says it is valuable. What a dollar bill is made of does not equal a dollar, it is valuable for a dollar because the government says that it is. For the money to remain valuable, an organization (Federal Reserve) has to keep control of the money supply.

Banking Today

Money Supply All the money available…currency, traveler’s checks, checking account deposits, etc. M1: ready and accessible money (currency, travelers checks, and checking accounts) M2: all of M1 plus savings accounts and other accounts that cannot be easily accessed.

Financial Institutions Commercial Banks: Bank of America Savings and Loans Associations: Initially a person could deposit money in a large general fund and then borrow money. Now just like Commercial Banks. Savings Banks: Initially for smaller deposits and withdrawls, but now just like a Commercial Bank.

Financial Institutions Credit Unions: cooperative lending associations for particular groups. Finance Companies: installment loans for consumers.

Electronic Banking Debit Cards ATMs Home/Phone Banking On-line Bill Pay Smart Cards

Functions of Financial Institutions Storing Money: safe place to save money…FDIC insurance protects people from losing money. Saving Money: Savings Accounts, Checking Accounts, Money Market Deposits, CDs Loans: Most banks only keep a fraction of the money they have on hand and lend our the rest.

Mortgages: specific loans for buying a house. Credit Cards: You buy something and then pay it back latter. – These laws have recently changed…