MONEY

Why do we need money?

Group Exercise

What is Money?

Watch this video:

https://www.youtube.com/watch?v=AjTwcQYgISA

3 main problems of bartering…

1. Fixing a rate of exchange

2. Finding someone to swap withDouble coincidence of wants must exists.

3. Trying to save

The functions of moneyMoney overcomes problems of barter by performing the following functions.

1. Money is a medium of exchange• Generally acceptable in exchange for all other

goods• Double coincidence of wants not needed.

2. Money is a measure of value• Avoids problems of fixing prices of goods and

services in terms of all other goods and services.

3. Money is a store of value• Commodities use up too much space or lose

value.

• Money usually a good store of value. People can save.

• BUT… continual rise in prices (inflation) money loses value.

4. Money is a means of deferred payment• Can buy on credit

• Credit in a barter system?– Would item still be fresh? – Would they be of the same quality?

The characteristics of good money

1. AcceptabilityMust be generally acceptable.

2. Durability

Must be hard-wearing. 3. Portability

Easy to carry.

4. DivisibilityMust be possible to divide money of a large value into smaller values without it losing value.

5. ScarcityScarcity = value

So, why is money important?

•Self sufficiency

•Specialisation

•Surplus

•Trade

Watch this video:

The Bartering Song!!! (WARNING – this song can be addictive!)

https://www.youtube.com/watch?v=ZXIuFpu72Nk

One Red Paper ClipWatch this video…

An amazing series of double coincidence of needs…

https://www.youtube.com/watch?v=BE8b02EdZvw

A Brief History of Money

Watch this video…

https://www.youtube.com/watch?v=kJ8HEsoI39s

Stage 1• Goods (shells, beads etc) used as money• PROBLEMS: NOT divisible, portable, durable

or scarce.

Stage 2• Precious metals (gold, silver) – due to scarcity.• PROBLEMS: NOT easily divisible, portable.

A Brief History of Money

Stage 3• Coinage• PROBLEMS: clipping, greedy kings!

Stage 4• Paper money• Paper receipts from Goldsmiths for deposits of

precious metals.