Do Now 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