Chapter3WhatIsMoney?©2013PearsonEducation,Inc.Allrightsreserved.3-2MeaningofMoney•Whatisit?•Money(orthe“moneysupply”):anythingthatisgenerallyacceptedinpaymentforgoodsorservicesorintherepaymentofdebts.•Aratherbroaddefinition©2013PearsonEducation,Inc.Allrightsreserved.3-3MeaningofMoney(cont’d)•Money(astockconcept)isdifferentfrom:•Wealth:thetotalcollectionofpiecesofpropertythatservetostorevalue•Income:flowofearningsperunitoftime(aflowconcept)©2013PearsonEducation,Inc.Allrightsreserved.3-4FunctionsofMoney•MediumofExchange:–Eliminatesthetroubleoffindingadoublecoincidenceofneeds(reducestransactioncosts)–Promotesspecialization•Amediumofexchangemust–beeasilystandardized–bewidelyaccepted–bedivisible–beeasytocarry–notdeterioratequickly©2013PearsonEducation,Inc.Allrightsreserved.3-5FunctionsofMoney(cont’d)•UnitofAccount:–usedtomeasurevalueintheeconomy–reducestransactioncosts•StoreofValue:–usedtosavepurchasingpowerovertime.–otherassetsalsoservethisfunction–Moneyisthemostliquidofallassetsbutlosesvalueduringinflation©2013PearsonEducation,Inc.Allrightsreserved.3-6EvolutionofthePaymentsSystem•CommodityMoney:valuable,easilystandardizedanddivisiblecommodities(e.g.preciousmetals,cigarettes).•FiatMoney:papermoneydecreedbygovernmentsaslegaltender.©2013PearsonEducation,Inc.Allrightsreserved.3-7EvolutionofthePaymentsSystem(cont’d)•Checks:aninstructiontoyourbanktotransfermoneyfromyouraccount•ElectronicPayment(e.g.onlinebillpay).•E-Money(electronicmoney):–Debitcard–Stored-valuecard(smartcard)–E-cash©2013PearsonEducation,Inc.Allrightsreserved.3-8FYIAreWeHeadedforaCashlessSociety?•Predictionsofacashlesssocietyhavebeenaroundfordecades,buttheyhavenotcometofruition•Althoughe-moneymightbemoreconvenientandefficientthanapaymentssystembasedonpaper,severalfactorsworkagainstthedisappearanceofthepapersystem•Still,theuseofe-moneywilllikelystillincreaseinthefuture©2013PearsonEducation,Inc.Allrightsreserved.3-9MeasuringMoney•Howdowemeasuremoney?Whichpartic...
