Topic 3

• Money


  • Reliable way to pay or be paid
  • Quote prices
  • Store value over time
  • Widely accepted means of payment
  • Unit of account
• More money is printed


  The value of money goes down
• Reserve Bank's role


  To control the value of money (interest rates)
• Why we need money

  • Facilitates trade
  • Allows people to specialise in producing things they have a comparative advantage
  • Rather than bartering, we trade money for goods/services
  • Makes trade with people we might not know or trust possible
  • Enables production and trade on a large scale
• Forms of money


  • Coins or banknotes (currency)
  • Deposits held in accounts at banks or other authorised deposit-taking institutions
  • Currency backed by the central bank which eliminates any risk of default
  • Deposit account balances
• Banks


  Must know who to give money to in order that they pay them back
• Legal tender


  • Money that must be accepted if offered in payment of a debt
  • A legally recognized form of payment for settling public and private debts
  • Establishes a common means of transaction and ensures the smooth functioning of the economy by providing a universally accepted medium of exchange
• Characteristics of money


  • Divisible
  • Portable
  • Durable
  • Scarce
  • Acceptable