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Money

In this lesson, students will be able to identify characteristics of money.

Students will be able to identify and/or define the following terms:

Money

Commodity Money

Representative Money

Fiat Money

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We use it every day but what is money?

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Money

• Money is a medium of exchange, a unit of account, and a store of value.

• As a medium of exchange, money measures value during the exchange of goods and services.

• What is the value of a sweater?

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When we purchase a sweater, we usemoney as a medium of exchange.

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Money, Again

• As a unit of account, money is a way to compare the value of goods and services.

• A more expensive sweater is considered more valuable than a cheaper sweater.

• Finally, money is a store of value. Money holds its value even if it is not used though inflation affects money.

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An expensive price tag tells us somethingabout the good’s value.

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And if we don’t spend it today, that’sO.K., too. Money is a store of value. Itkeeps its value unless inflation occurs.

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But I don’t haveto tell you aboutinflation. Youknow all aboutrising prices.You’ve been

to the gasstation.

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Not All Money is the Same

• Commodity money can be used as money but also has value in itself.

• An example of commodity money is salt. Salt was once used in some societies as money.

• Salt could be used as money or eaten.

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Long ago, in somesocieties, salt wasused as money.

Salt is an exampleof commodity

money. Salt canbe used as money

or eaten.

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Representative Money

• Representative money is another type of money.

• An example of representative money is an I.O.U.

• The paper that the I.O.U. is written on can be exchanged for something valuable.

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Our dollarswere oncebacked bygold. You

could exchange a

dollar for gold.

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Fiat Money

• Fiat money is our money today.

• Our money is money because the government states that it is an acceptable means to pay debts.

• In other words, its money because the government says so.

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Its moneybecause

the governmentsays so. Itsfiat money.

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Six Characteristics of Money

• Do we use pigs as money or paper as money? How does a society decide?

• There are six characteristics of good money. Money should be portable, divisible, durable, uniform, accepted, and have a limited supply.

• Too much money in circulation means less value.

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Questions for Reflection:

• What is money?

• Explain each of the three functions of money.

• Provide an example of commodity money.

• What is representative money?

• How does fiat money differ from commodity money and representative money?