12 Economics - Ch 10.1

12 Economics - Ch 10.1

The Evolution, Function, and Characteristics of Money

Learning Objectives

• Define trade.

• Narrate the evolution of money

• Define the meaning of bartering.

• Explain how people were using the barter system.

Essential Question

How has money evolved to meet the needs of people everywhere?

Open Ended

Have you ever traded things, such as helping someone with homework in exchange for a movie ticket or a share of a pizza? Tell us your story.

Who manages our money?

The Federal Reserve System (Fed): privately owned, publicly controlled, central bank of the United States. The Fed issues paper currency known as Federal Reserve Notes which is the most visible part of money supply.

Similarly, is the Central Bank of the UAE; the state institution responsible for managing the currency, monetary policy and banking regulation in the UAE.

Guiding Question

Why did money replace the barter system?

Lets watch this video together

 https://www.youtube.com/watch?v=YNIAOt7zzmQ

Open Ended

Define trade in your own words:

The Evolution of Money

• Barter Economy: Moneyless economy that relies on trade of barter.

• Following the barter economy came the era of money in Colonial America where they used Commodity Money: Money that has an alternative use as an economic good. Example: Gunpowder, flour, corn, etc..

• Other colonies established Fiat Money: Money by government decree which has no alternative value or use as a commodity. Example: Wampum (a form of currency made out of white and purple mussel shells).

• Early paper currency was another popular form of Fiat money in the colonies where some states allowed individuals to print their own paper currency.

The Evolution of Money

• Colonists also used modest amounts of specie: money in the form of silver or gold coins. Example: English shillings, Australian talers, and various European coins that immigrants brought to the colonies.

• The most popular coin in the colonies was the Spanish Peso, which came to America through trade and piracy.

• This lead to the naming of the US currency "Dollars".

From "Talers" to "Dollars"

Spanish pesos were known as "pieces of eight", because they were divided into eight subparts known as "bits". Because the pesos resembled the Australian Talers, they were nicknames as "talers", which in German sounded exactly like the word "dollars". This term became so popular that the dollar became the basic monetary unit in the US money system.

Monetary unit: Standard unit fo currency.