What is money?11/8/2009

Money Money can be anything that has these

three things…› A Medium of exchange –must determine

value during an exchange Without money we must barter=trade

› A Unit of Account – a means of comparing the values of goods/services.

› A Store of Value – Something that keeps value if it is stored rather than used.

How do we decide what makes “good” money?

Six characteristics of money – tell us how well something could serve as currency1. Durability – Must be long lasting2. Portability – must be easy to trade/keep with

you3. Divisibility – must be easily divided4. Uniformity – must be easily classified5. Limited Supply – Can’t be easily obtained6. Acceptability – Everyone must agrees on it

Why is money valuable? Commodity Money – has

another use other then $› Only seen in simple

economies› Ex: Tobacco and cotton

served as commodity money in the American colonies.

› What characteristics do commodity money lack?

Types of money and value

Representative Money –money tha stands for something else.› A sort of IOU› Ex: The US gov’t issued

silver certificates that were “backed” by silver. You could exchange the silver certificate for silver at the bank.

Types of money and value

Fiat Money – Has value because the gov’t says it is› Money used in the U.S.A.› Federal Reserve gives it

value by limiting supply› Your money is useless› Gov’t issues Baruck’s

instead of dollar.