Money

Money

Objectives:

• outline the functions that

  money performs and the

  characteristics that money

  possesses

• explain why the different types

  of money have value

• describe how the money

  supply in the United States is

  measures

Introduction video

https://www.youtube.com/watch?v=Jdsujp6Zf8E

What is money?

Money is anything that people will accept in

exchange for goods and services.

Examples of money before

What do the following things have in common: cattle, corn, rice, salt, copper, gold, silver, seashells, stones, and whale teeth? At different times and in different places, they have all been used as money.

Whatever it is that people choose to use as money,

it should perform three important functions.

Function of money - Medium of exchange

Money must serve as a medium of exchange, or the means through which goods and

services can be exchanged.

Without money, economic transactions must be made through barter—exchanging goods and services for other goods and services. Barter

is cumbersome and inefficient because two people who want to barter must at the same time want what the other has to offer.

Function of money - Store of value

Money is something that holds its value over

time. People, therefore, do not need to spend all their money at once or in one place;

they can put it aside for later use. They know that it will be accepted wherever and whenever it is presented to purchase goods and services.

Function of money - measure of worth (standard of value)

Money also serves as a standard of value. A standard of value

determines the economic worth in the exchange process. It allows people to measure the relative costs of goods and services. A $20 T-shirt is worth two $10 phone cards, four $5 burritos, or twenty $1 bus rides.

Properties of Money

Physical:

Durability - Money should be durable, or sturdy, enough to last

throughout many transactions.

Portability - Money needs to be small, light, and easy to carry. It’s

easy to see why paper bills are preferable to cattle as money.

Divisibility - Money should also be divisible so that change can be

made. For example, the dollar can be divided of pennies, nickels, dimes, or quarters.

Uniformity - Lastly, money must be uniform, having features and

markings that make it recognizable. Coins that are used as money

look different from other flat metal disks. Paper money is a consistent

size and uses special symbols and printing techniques.

M1

Measure of the money supply that includes only the most liquid (spendable) forms of money or what can be used immediately for transactions—currency, demand deposits, and other checking accounts.

Currency (Cash)

–government-issued paper money and metal coins

Demand deposit (Check)

–demand deposit order instructing a bank to pay a given sum to a specified payee

Checking Account

–bank account funds, owned by the depositor, that may be withdrawn at any time by check or cash

M2

–measure of the money supply that includes all the components of M-1 plus the forms of money that can be easily converted into spendable forms such as: Small time deposits, Savings deposits, Money market mutual funds

Time Deposit

–bank funds that have a fixed term of time to maturity and cannot be withdrawn earlier or transferred by check

Saving deposits

Saving deposits are funds that people place in a financial institution for a specific period of time in return for a higher interest rate.

Money Market Mutual Fund

–fund of short-term, low-risk financial securities.

- Money market funds are intended to offer investors high liquidity with a very low level of risk such as: Treasury bills, commercial paper, banker's acceptances, certificates of deposit,

Multiple Choice

which one is money ?

• cash (currency)

• saving deposits

• money market mutual fuds

• all of the above

Multiple Choice

Barter is

• exchanging goods and services for money

• exchanging goods and services for another goods and services

• buying goods with currency

• all of the above

Multiple Choice

Which of the following is not a characteristic of money?

• Divisibility

• Portability

• Acceptability

• Responsibility

Multiple Choice

Which of the following is NOT one of the characteristics of money?

• durable

• stable

• scarce

• affordable

Multiple Choice

This characteristic of money refers to the ability to carry it with you---lightweight and easy to transport.

• portability

• uniformity

• acceptability

• stability

Multiple Choice

What does AED stand for?

• United Arab Emirates Dirham

• Academy for Educational Development

• Apple Emirates Development

• Arab Early development

Open Ended

Why are economic transactions easier with money than with barter?

Open Ended

Why is it important that money be divisible?

Multiple Select

Which of these forms of

money are included in M1:

• checking accounts

• coins and paper money

• money market accounts

• time deposits

• savings accounts