Unit: Money, Banking and Monetary Policy

1. Topic: Money Unit: Money, Banking and Monetary Policy

2. Learning Targets • I will be able to define what money is, and describe the functions and characteristics of money. • I will be able to explain the significance of barter and the reasons for the use of common currency.

3. Money • In early societies, barter economies were used (no money – relied only on trade). • Early forms of money were called commodity money (money that has an alternative use).

4. Money • As societies developed many societies switched to fiat money, which is money issued by the government. • Examples of fiat money are coins and treasury (dollar-type) bills.

5. Money • Def: money can be ANYTHING that is a medium of exchange, a measure of value and a store of value.

6. Functions of Money • Medium of exchange - generally accepted as a payment for goods and services. • Measure of value - “worth” something. • Store of value - goods and services can be converted into money, which can be easily stored until the future.

7. Characteristics of Money • Portable – must be easily transferred from one person to another, must be easily carried. • Durable – must last when handled. • Divisible – must be able to be divided into smaller units, so people only have to use as much as is needed. • Stable – must be available, but have a limited supply.

8. Money Standards • Monetary standard - keeps the money supply portable, durable, divisible and stable in value. • Current U.S. monetary standard: inconvertible fiat money standard (meaning that money is government-issued and cannot be converted to anything else). • Modern money consists mainly of checking accounts, coins, and Federal Reserve notes.