Money and Prices

Objectives:

• Learn why we use money

• Learn how to set prices for goods and services

History of Money

First form of exchange
was bartering

– Defined as the

exchange of goods
and services for other
goods and services

– Not very efficient

History of Money

Early forms of money:

Shells

Grains

Precious metals

Functions of Money

Money has three uses:

– Medium of exchange
– Unit of accounting
– Store of value

Medium of Exchange

Accepted as payment for goods and services

Unit of Accounting

Used to compare the

value of products

Store of Value

Used to save for

future spending

Prices

Price is the value placed on a product.
What happens if a store’s prices are:

Too high?

Too low?

Vocabulary

Federal Reserve system

A national banking system, established in 1913, that controls the U.S. money supply and the availability of credit in the country.

Vocabulary

Federal Reserve notes

paper currency issued by the Fed that eventually replaced all other types of federal currency

Vocabulary

Barter economy

economic system in which one set of goods or services is exchanged for another

Vocabulary

commodity Money

objects that have value in themselves and that are also used as money

Vocabulary

Fiat Money

money that has value because the government has ordered that it is an acceptable means to pay debts

Vocabulary

Demand Deposit Money

money that has value because the government has ordered that it is an acceptable means to pay debts