Money

• Barter


  The exchange of goods and services without the use of money
• Barter system


  • Double coincidence of wants
  • Some goods could not be separated into smaller units
  • Storage facilities were needed for larger goods and other delicate goods
  • No value system was present, which means some persons were at a disadvantage
• Money


  Any commodity that is accepted by the general public of an economy as a means of payment and settling debts
• Features of Money


  • Durability- not easily destroyed by expected wear and tear
  • Portability- money should not be a burden to carry around
  • Homogeneity- all notes and coins have the same denominator some of the features such as colour, picture, size, watermark, and national symbol
  • Acceptability- this means that everyone accepts the commodity as a means of payment and settling debts
  • Divisibility- Money should be able to be broken down into smaller units in order for goods and services to have various values
  • Stability- in order for money to function successfully its value must be stable and not change easily from one day to the next
  • Scarcity- money must be relatively scarce so persons are willing to work for it
• Types of Money


  • Commodity money- the use of a particular commodity which has value in order to pay for goods and services
  • Representative money- the use of a signed piece of paper which the recipient would take to the bank and exchange for value written
  • Fiat money- the currency of a country which is issued from the country's central bank. This money has no intrinsic value
• Functions of Money


  • A medium of exchange- money is accepted as a means of payment for goods and services
  • A store of value- Money can be stored and saved for use at a later date
  • A unit of account- This means that money has a measure of value. All goods and services can be given value in terms of money
  • A standard of deferred payment- a consumer might buy a good today and desire satisfaction from consuming it now. However, he might choose to pay for it at a later date
• Money supply


  The total stock of money in the economy at a particular time. The supply of money in the economy is determined by the central bank.
• Narrow money (M1)


  • All notes and coins in circulation
  • All deposits on which cheques can be drawn
  • Traveler's cheques
• Coins


  Issued for the convenience of small everyday transactions
• Notes


  Issued to purchase general goods and services
• Traveller's cheques


  Can be used to purchase goods and services directly or can be changed into cash to do so
• Broad money


  M1 plus saving accounts in financial institutions and money marketing accounts