Money

Chapter 10 Section 1

http://www.netvibes.com/economicsrchs#Chapter_10_Sec_1

Objectives:

1. Describe the three uses of money.2. Explain the six characteristics of

money.3. Understand the sources of money’s

value.

Key Terms

• Money• Medium of

exchange• Barter• Unit of Account• Store of Value

• Currency• Commodity

Money• Representative

Money• Flat Money

What do you know about Money?

• Make a short list of what you know about money.

• Can you name all 12 Americans who have been honored by Congress by having their image and name placed on paper currency? (hint: they’re all old, and dead)

• Watch Video

c.640 – c. 630 BC First true coins produced in Lydia ~ Stater

Money throughout the history of the world

Shells

Live stock

Precious stones

Skulls

Pearls

Wheat

Feathers

Brass

Silver

Gold

Paper money

What is money?

• Money is anything that serves as a medium of exchange, a unit of account, and a store of value.

What is money? (cont’d)

• Money as a Medium of Exchange– A medium of exchange is anything that is used to

determine value during the exchange of goods and services.

• Money as a Unit of Account– A unit of account is a means for comparing the values of

goods and services.

• Money as a Store of Value– A store of value is something that keeps its value if it is

stored rather than used.

Money as a Medium of Exchange

• Anything that is used to determine value during the exchange of goods and services.

What if money didn’t exist?

• Barter ~ exchange of one thing for another. Give you this for that.

Money as a Unit of Account

• A means for comparing the values of goods and services.

• Comparing the value of items sold in stores. clothingFood itemsEntertainment, concerts, movies

Store of Value

• Money keeps it value with one exception of inflation ~ general increase of prices.

Example : P. 244Sell VCR to purchase CD Player. $100.00Don’t purchase CD Player right away ~ keep

money. $100.00U.S experiences 10 percent inflation. The

money your received would have 10 % less value. $90.00 Value.

Question? P. 244

• As a medium of exchange money determines value during the exchange of goods and services. As a unit of account, it provides a way to compare the value of goods and services. As a store of value, it general keeps its value if it is stored rather than spent.

How does inflation affect the use of money as a store of value?

Characteristics of Money

• The coins and paper bills used as money in a society are called currency. A currency must meet the following characteristics:– Durability

• Objects used as money must withstand physical wear and tear.

– Portability• People need to be able to take money with them as they go about

their business.

– Divisibility• To be useful, money must be easily divided into smaller

denominations, or units of value.

Characteristics of Money (cont’d)

• Uniformity– Any two units of money must be uniform, that is,

the same, in terms of what they will buy.• Limited Supply—SCARCITY!

– Money must be available only in limited quantities.

• Acceptability– Everyone must be able to exchange the money for

goods and services.

Question? Page 245

• Coins used throughout the Roman Empire provide a good example of the six characteristics of money.

What does the fact that Roman coins have been found in places as far from Rome as Britain and Egypt suggest about how well the coins served as currency?

Sources of Money’s Value

• Commodity Money– Commodity money consists of objects

that have value in themselves. • Representative Money

– Representative money has value because the holder can exchange it for something else of value.

• Fiat Money– Fiat money, also called “legal tender,” has

value because the government decreed that is an acceptable means to pay debts.

The Three Uses Of Money Review

Money is anything that serves as a• Medium of exchange• Unit of account• Store of value

3 Functions of Money

• Medium of exchange, Money determines the value during the exchange of goods and services.

• Unit of Account, provides a way to compare the value of goods and services.

• Store of Value , It generally keeps it’s value if it is stored rather than spent.

• Money Quiz : http://www.wdfi.org/ymm/kids/history/quiz.asp

• Practical Money Skills Game http://www.practicalmoneyskills.com/games/quiz/index.html

• Facts about Money: http://www.factmonster.com/ipka/A0774850.html