SSEM

I1 T

HE STU

DENT

WIL

L DES

CRIBE

HOW H

OUSEHOLD

S, BUSIN

ESSES

, AND

GOVERNM

ENTS

ARE

INTE

RDEPEN

DENT

AND INTE

RACT TH

ROUGH FLO

WS O

F

GOODS, SER

VICES

, AND M

ONEY.

B. EXPLA

IN T

HE ROLE

OF

MONEY

AS A

MED

IUM

OF

EXCHANGE

AND HOW

IT

FACIL

ITATE

S EXCHANGE.

 

CHARACTERISTICS OF MONEY

Money must be:

1.Limited Availability

2. durable (DURABILITY)

3. easy to carry (portability)

4. divisible

PORTABILITY

Money must be portable or easily transferred from one person to another.

It makes the exchange of money for products easier.

DURABILITY

It must be durable so that it lasts and when handles does not deteriorate when being held as a store of value.

DIVISIBILITY

Money should be easily divisible into smaller unites, so that people can use only as much as needed for any transaction.

LIMITED AVAILABILITY

It must be available but only in limited supply.

Money loses its value whenever there is too much of it.

THE FUNCTIONS OF MONEY

Money serves three purposes in our society:

1.Medium of Exchange People accept money in exchange for goods and services.

2.Measure of Value The value of a good or service can be measured with money. For example, an item with a price of $2,000 is worth twice as much as an item with a price of $1,000.

3.Store of Value Money can be saved and used in the future.

Money in the United States economy primarily refers to the coins, currency, and checkable (demand) deposits available to consumers and producers to make purchases. This is known as the M1 definition of money which is the definition of money used for the money function “medium of exchange”. When we use money as a medium of exchange, we are using it to facilitate transactions. Households and businesses are willing to accept money as payment for resources and goods because they believe they will be able to use it for purchases in the future

The money we use as a medium of exchange in the United States has no intrinsic value of its own. The money has value because we have faith in the stability of the U.S. economy. If people believed the U.S. dollar lacked stable value and could not be used for future transactions, people would cease to accept it as payment.