MONEY

Macroeconomic Unit

History of Modern MoneyBefore money was developed people would barter (trade) for goods

Trade Problems

Double coincidence of

wants

Two people having what

the other wants

Time consuming Making change

History of Modern Money

People began to use different items as a medium of exchange such as gold, stones, shells, cocoa beansMoney is anything a person will take in trade for a good or service

History of Modern Money

Gold became the most common type of currency, but gold had problems: heavy, attracted thieves

People began to leave their gold in the town’s goldsmith’s safes and trading receipts -- led to modern banking

Modern Banking Origins

People used the gold receipts to make purchases

Many people and shops did not redeem the gold, but continued to use the paper receipts

to trade – 1st paper currency

Modern Banking Origins

Goldsmiths became the first bankersReceipts became the origin of paper currencyLoans of gold from the goldsmiths became the first use of fractional reserve banking

Why Use MoneyConvenient

Remains good

Divisible

Standard Values

What Gives Money ValueBelief

General Acceptability – every store takes it

Legal tender – gov’t says its valuable to pay debt

Debt backed by the federal gov’t

Types of Money

Intrinsic Value – made of material that is valuable

Commodity Money Ex.: gold coins, diamonds,

cattle

Face Value – value b/c it states it on the outside

Representative Money Paper backed by gold,

silver, etc.

Fiat Money Money b/c gov’t says so;

backed by belief and confidence in the gov’t

Money Facts

IS:Federal Reserve Notes = CurrencyDemand Deposits = Checking

Accts.Debit and Check Cards

IS NOT:Credit

Cards = loan

Savings Acct = Near Moneys

MoneyFunctions of Money:

• Used in trade of goods & services

Medium of Exchange

• Measures worth of items

Unit of Account

• Maintain value over time

Store of Value

29%

70%

1%

Money Supply (M1)

CurrencyDemand DepositsTraveller's Checks