Money

Money is anything that people will accept in

exchange for goods and services.

What do the following things have in common: cattle, corn, rice, salt, copper, gold, silver, seashells, stones, and whale teeth? At different times and in different places, they have all been used as money.

Whatever it is that people choose to use as money,

it should perform three important functions.

Money must serve as a medium of exchange, or the means through which goods and

services can be exchanged.

Without money, economic transactions must be made through barter—exchanging goods and services for other goods and services. Barter

is cumbersome and inefficient because two people who want to barter must at the same time want what the other has to offer.

Money is something that holds its value over

time. People, therefore, do not need to spend all their money at once or in one place;

they can put it aside for later use. They know that it will be accepted wherever and whenever it is presented to purchase goods and services.

Money also serves as a standard of value. A standard of value

determines the economic worth in the exchange process. It allows people to measure the relative costs of goods and services. A $20 T-shirt is worth two $10 phone cards, four $5 burritos, or twenty $1 bus rides.

Physical:

Durability - Money should be durable, or sturdy, enough to last

throughout many transactions.

Portability - Money needs to be small, light, and easy to carry. It’s

easy to see why paper bills are preferable to cattle as money.

Divisibility - Money should also be divisible so that change can be

made. For example, the dollar can be divided of pennies, nickels, dimes, or quarters.

Uniformity - Lastly, money must be uniform, having features and

markings that make it recognizable. Coins that are used as money

look different from other flat metal disks. Paper money is a consistent

size and uses special symbols and printing techniques.

Measure of the money supply that includes only the most liquid (spendable) forms of money or what can be used immediately for transactions—currency, demand deposits, and other checking accounts.

–government-issued paper money and metal coins