Money

What is Money?

Problems:In the barter system, before trade could occur, each

individual had to have something the other wanted.

Some goods cannot be split. If 1 goat is worth five chickens, how do you exchange if you only want 1 chicken?

Money is anything that is generally accepted in payment for goods and services.

What would happen if we didn’t have money?

The Barter System: goods and services are traded directly. There is no money exchanged.

Three Uses of MoneyMedium of Exchange - anything that is used to determine value during the exchange of goods and services.

ex--> 1 goat = $50 = 5 chickens OR 1 chicken = $10

Store of Value - money keeps its value if you decide to hold on to it instead of spending it.

Unit of Account - money gives us an easy way to compare the value of goods and services.

Six Characteristics of Money

Durability

Portability

Divisibility

Uniformity

Limited Supply

Acceptability

Three Types of Money

Commodity Money

Representative Money

Fiat Money

Commodity money consists of objects that have value in themselves and are also used as money.

Representative Money creates value in

objects because you can exchange them for

something else of value.

Fiat Money has value because a government has

recognized it is an acceptable means

to pay debts.

Banking

Bank - An institution for receiving, keeping, and lending money.

National Bank - A government bank, that issues currency, manages government funds, and monitors other banks.

Money Supply - All the money available in the United States economy.

Banks make most of their profit through collecting interest from people who have taken out loans.

Private or Business Loan

Mortgage

What is the Difference between a Debit Card and a Credit Card?

•Debit Card - Used to access your money from your personal checking account to exchange for goods and services.

Essentially a short-term loan with a higher than normal interest rate.

Ex: You buy a shirt with a credit card, VISA pays the store, you pay VISA the price of the shirt plus interest and fees.

•Credit Card - Bank, Business, or Creditor pays the bill, and then you pay them back with interest.