Did YOU Know?! The best recorded distance for projectile vomiting is 27 feet Originally, Nintendo was a playing card manufacturer Worcestershire Sauce is basically Anchovy ketchup In the United States, deaf people have safer driving records than hearing people!

Unit III: Financial Institutions Lesson I

What is Money? 1. Money is anything widely accepted as final payment for goods and services. 2. Money has three uses: medium of exchange, unit of account, and store of value 3. Money has six characteristics: durability, portability, divisibility, uniformity, limited supply, and acceptability.

What are the three uses of Money? 1) Medium of exchange: anything used to determine value during the exchange of goods and services 2) Unit of account: A way to compare the value of goods and services 3) Store of Value: Money keeps its value if you decide to hold on to-or store- it instead of spending it

Barter Without money, people would acquire goods and services through barter. Barter is the direct exchange of one set of goods or services for another Many parts of the world still use bartering but as an economy becomes more specialized, it becomes too difficult to establish the relative value of items to be bartered. Money, therefore, makes exchanges much easier. It also provides a means for comparing the value of goods and services. Except during periods of inflation, money usually functions as a good store of value.

Currency The coins and paper bills people use as money are called currency. In the past, people have used many things as currency including cattle, salt, precious stones, fur, and dried fish. These things would not serve as good currency in today’s world because they lack at least one of the six characteristics of money.

Six Characteristics of Money Durability Money must be able to withstand the physical wear and tear that comes with being used over and over again Portability Money must be easily carried by people. Paper money and coins work because they are small and light

Yap Yap is an island in the Pacific Ocean known for its large stone money.

Six Characteristics of Money Divisibility Money must be easily divided into smaller denominations. Uniformity People must be able to count and measure money accurately.

Six Characteristics of Money Limited Supply (scarce) Money would lose its value if there was an unlimited supply of it. Therefore, the Federal Reserve regulates the amount of money in circulation in the United States. Acceptability Everyone in an economy must be able to take the objects that serve as money and exchange them for goods and services.

Why do we use Money? 1. Money acts as a medium of exchange, making trade easier. 2. Money encourages specialization by decreasing the costs for exchange. 3. Money acts as a store of value, making it easier to save and invest. 4. Money acts as a measure of value, making it easier to compare the value of goods and services.

What makes money valuable? The source of money’s value depends on whether it can be classified as commodity money, representative money, or fiat money

Commodity Money Commodity money consists of objects that have value in and of themselves and that are also used as money Ex: gold, silver, cattle Commodity money lacks several characteristics that make objects good to use as money, such as divisibility and portability

Representative Money Representative money makes use of objects that have value solely because the holder can exchange them for something else of value. In the 1600s lenders helped the Massachusetts colony pay for war. They were given bills of credit which could be exchanged for specie (money in the form of coins made of gold or silver) An IOU- the paper is worth nothing, but the promise could be worth a lot

Fiat Money Fiat money has value because a government has decreed that it is an acceptable means to pay debts- value because a government says it is United States money today is fiat money Citizens have confidence that the money will be accepted. Because the Federal Reserve controls the supply, it remains in limited supply, which makes it valuable.

Commodity Money v Fiat Money Commodity money (e.g., gold coin) has value in itself, while fiat money (e.g., U.S. dollar) has value because the government has declared that it is acceptable for paying debts.

United States Currency Money was backed by gold Bills could be exchanged for gold 1971-present Money is not backed by anything but trust “Crystallized trust”

Where did the Dollar Sign Come From?

Liquid: in the form of money, or able to be easily changed to money In other words, easy to get your hands on Reserve: The amount of money banks hold from deposits Money supply: The total amount of money that is available in the economy at any time Key Vocabulary

How is the Money Supply Counted? M1: Cash held by the public +Funds and accounts on which demand withdrawals can be made +Travelers checks M2: All of M1 + Instruments and accounts that are less liquid

“Suppose Jack purchased 100 beans at the market. When he plants those beans at home, the resulting beanstalk produces five times as many beans as he planted. How many beans grew on the beanstalk?” What if I told you money acts the same? Word Problem

How is money created?

Money is created in the United States by banks making loans This increases the amount of money in circulation Money is destroyed in the United States by people paying back their loans This takes money out of circulation in the economy

The Money Multiplier