Chapter 10 – Money and Banking

1. Chapter 10 – Money and Banking Cutler – Economics

2. BELLRINGER NO BELLRINGER THIS WEEK RESUMES NEXT WEEK

3. Section 1 – Money • The Three Uses of Money • Medium of Exchange • Unit of Account • Store of Value • 6 Characteristics of Money • Durability • Profitability • Divisibility • Uniformity • Limited Supply • Acceptability • Sources of Money’s Value • Commodity Money • Representative Money • Fiat Money

4. Three Uses of Money • Money: anything that serves as a medium of exchange, unit of account, and a store of value • Three Uses of Money • Medium of exchange • Unit of account • Store of value

5. Three Uses of Money • Medium of Exchange • Anything that is used to determine value during the exchange of goods and services • Alternative to a medium of exchange? • Barter: direct exchange of one set of goods or services for another

6. Three Uses of Money • Money as a unit of account • Means for comparing the values of goods and services • Comparing prices between stores

7. Three Uses of Money • Money as a store of value • Something that keeps its value if it is stored rather than used • You don’t have to spend every dollar you take in • You can put $ in savings and take it out when you need it at a later time

8. Six Characteristics of Money • Durability • Portability • Divisibility • Uniformity • Limited Supply • Acceptability

9. Six Characteristics of Money • Durability • Using coins instead of wheat, olive oil, or other items that can disintegrate over time • Confused? • Dollar bills can easily be replaced… • Paper money can typically last at least a year in circulation

10. Six Characteristics of Money • Portability • Ability to take money anywhere • Transfer from one person to the next

11. Six Characteristics of Money • Divisibility • Breaking money up into smaller denominations • The $100 into 2 $50s or 5 $20s • Using a $20 to pay for something that is only $5

12. Six Characteristics of Money • Uniformity • $1 is always $1 • Dried fish as money? • How much is a dried fish worth? • Size of the dried fish

13. Six Characteristics of Money • Limited Supply • Why isn’t sand valuable? • Federal Reserve controls the “SUPPLY” of money

14. Six Characteristics of Money • Acceptability • People must be willing to take your money

15. Sources of Money’s Value Commodity Money Representative Money Fiat Money

16. Sources of Money’s Value • Commodity Money • Objects that have value in themselves and that are also used as money

17. Sources of Money’s Value • Representative Money • Objects that have value because the holder can exchange them form something of value • Giving someone and IOU • Gold or Silver Certificates

18. Sources of Money’s Value • Fiat Money • Money that has value because the government has ordered that it is an acceptable means to pay debts