3 Money

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Did you know….O That the Secretary of Treasury signs

the money printed in the US?O new signature – Click to watch video –

Must be in full screen mode.O What is Money?

O money explained -Click to watch video –Must be in full screen mode.

O How is money made?O reading rainbow -Click to watch video –

Must be in full screen mode.

WATCH

Uses or Functions of Money

1. Medium of ExchangeO Readily acceptable- anybody will take itO Decrease transaction costs- it’s worth is given

by the priceO Decreased by tradition or law

O Ex.- Tobacco, furs, crops

2. Unit of Account/Unit of MeasureO Able to measure the value of goodsO Easily divisible

3. Stores of ValueO Can store the purchasing power- ABILITY TO

SAVEO Value varies with the rate of inflation

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Sources Of Money’s Value

1. Commodity Money value as a good (tobacco, wheat, cows)

2. Representative Money money backed by gold or silver- this is the old way

3. Fiat Money declared legal tender by government

because they say so – people accept that the $ have value

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Characteristics

1. Durablecan withstand wear and tearnot made with just paper

2. Portableeasily carried around

3. Divisiblecan easily be divided into small

parts

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Characteristics4. Stable in Value

does not change value rapidlyAble to trust in the Dollar

5. Scarcenot easily or abundantly available

Goes back to our #1 problem of economics

6. Acceptedmust be accepted as a medium of

exchange

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Death to the Penny? O http://youtu.be/y5UT04p5f7U

WATCH

BitcoinO A new currency?

O youtube video (older)O What is Bitcoin?

WATCH

4. Inflation

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InflationO General rise in pricesO Consumer Price Index- measures a group

of goods that a typical consumer would buy. O The HIGHER the CPI number the more unstable

prices areO Numbers over 5% could create/indicate

problems to comeO If your basic needs cost more, what happens to

your secondary expenses?O How can this effect the economy?

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InflationO Types

O Quantity Theory: inflation occurs when too much money is in circulation

O Demand- pull Theory: inflation occurs when the demand for goods and services exceeds existing supplies

O Cost-push Theory: inflation occurs when producers raise prices to meet increased costs

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InflationO Effects

O Purchasing Power: ability to buy goods and services decreases

O Income: If you don’t get a raise but prices increase, what happens?

O Positive Effect: Loans O When you take out a loan for $1,000 you still

only owe $1,000 even though the purchasing power of a $1,000 over time could decrease.

O interest rates-bank’s way to make $ & counter act inflation, next unit

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READ

Brazil Inflation Case Study

Use the reading to answer the questions on your handout.

Get a stamp!

READ

Answer the following questions…

1. Why did Brazilians feel their government couldn’t control inflation? __________________ _______________________________________

2. What happens to consumption when inflation becomes an issue?______________________ _______________________________________

3. Do you think Brazil should have abandoned their original currency? __Explain. ________________ ________________________________________

4. Why do you think the URV was so successful? Because…________________________________________________________________________

Get a stamp today!

STOP

Answer the following questions…

1. Why did Brazilians feel their government couldn’t control inflation? __________________ _______________________________________

2. What happens to consumption when inflation becomes an issue?______________________ _______________________________________

3. Do you think Brazil should have abandoned their original currency? __Explain. ________________ ________________________________________

4. Why do you think the URV was so successful? Because…________________________________________________________________________