Transcript of FrontPage: Consider what money is used for. Could anything else be used in its place? The Last Word:...
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- FrontPage: Consider what money is used for. Could anything else
be used in its place? The Last Word: No homework; quiz next week;
business presentation Jan 6th
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- Chapter 10, Section 1
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- Money is anything that people will accept in exchange for goods
and services. Money should perform 3 important functions. Function
1: Medium of Exchange Money must serve as a medium of exchange, the
means through which goods and services can be exchanged. Without
money, economic transactions must take place through barter
exchanging goods and services for other goods and services have to
give them. Barter is inefficient because it requires a double
coincidence of wants you must find someone who has what you want
and they must want what you have to give them.
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- Function 2: Standard of Value Money allows people to measure
the relative costs of goods and services. In the U.S., the basic
monetary unit is the dollar which is used to state the worth of
goods and services in our economy.
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- Function 3: Store of Value Money allows people to store the
value of their economic activities. People generally do not have to
spend money immediately or only in one place.
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- To perform the 3 economic functions of money, an item must
possess certain physical and economic properties. - Physical
properties are characteristics of the item itself. - Economic
properties are linked to the role that money plays in the
market.
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- Durability money should last throughout many transactions, not
spoil or fall apart. Portability money should be small, light, and
easy to carry. Divisibility money should be divisible so that
change can be made. Uniformity money should be uniform, having
features and markings that make it commonly recognizable.
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- Stability of value moneys purchasing power, or value, should
remain relatively stable. Scarcity money must be scarce to have any
value. Acceptability people must be willing to accept it in payment
for goods and services.
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- Commodity money derives its value from the type of material
from which it is composed. Ex. gold, cattle, rice, etc.
Representative money has no intrinsic value, but can be exchanged
for something that does. US dollars once were able to be exchanged
for an equivalent amount of gold or silver. Fiat money is declared
by the govt. and accepted by citizens to have worth (ex. US $
today).
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- Currency is paper money and coins. Checking accounts are called
demand deposits because funds in checking accounts can be converted
into currency on demand. Money can't buy love, but it improves your
bargaining position.
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- Near money is savings accounts and time deposits that can be
converted into cash relatively easily. It is measured in the same
terms as money (ex. $), but is NOT actually money itself. A wise
person should have money in their head, but not in their heart.
Jonathan Swift
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- M1 is the narrowest definition of the money supply and includes
currency, demand deposits, and other checkable deposits. (2013 2.58
Trillion) M2 is a broader measure that includes all of M1 plus
savings accounts, certificates of deposits, and money market mutual
funds. (2013 10.98 Trillion)