1. Money, Banking, Saving, and Investing
Unit 8
Essential Question:
What is money and how do economists measure it?

2. What is money? Brief history
Has been many things – gold, silver, salt, shells, furs, beads, tobacco, whiskey, rocks
This is commodity money
Renaissance – banks emerge as safe place to store gold…paper banknotes were given
This is commodity-backed money
Governments began to issue paper money, that was NOT backed by anything, called fiat money
What matters?  trust

3. Cont. Three functions of money:
Way to exchange – it’s easier than barter
Standard of value – $1 = $1 (not so clear with barter)
Store of value – it holds value over time
Six characteristics of money (SAPDUD):
Scarcity – only so much
Acceptability – trust matters
Portability – able to carry it
Durability – must hold up
Uniformity – $1 is $1
Divisibility – can divide it

4. Money today Money supply
M1 = liquid assets (cash or easily switched to cash)
M1  Cash, checking deposits, travelers’ checks
Savings are “near-money”, not included in M1
M2 = M1 + $ saved
Credit card = promise to pay in future
Debit card = immediately deducted from a bank account

5. Saving & Investing Ways to save Piggy bank – safe(?), zero interest
Bank – safe, very low interest (Rule of 72…how long ‘til $ doubles?…72/interest rate)
Social security – government sponsored pension
401(k) – job sponsored “piggy bank”, matched by job(?), tax benefits
Personal savings
Can be an IRA (individual retirement account)
Can be investments
Bonds – government-issued “I.O.U.s” – safe, okay interest
Stocks – shares of a company – risky(?), highest payout historically
Mutual funds – packages of many stocks; it’s diversified, safer, steadier