Download - What is Money?
LESSON # 1
In this lesson we shall learn…
1. What is Money?
2. What does it do?
3. Where does it come from?
4. What role does a Bank Play?
Let’s start by answering
There could be several possible answers!
IS
MONEY
IS
MONEY
MONEY IS MONEY IS
But ‘None’ Defines ‘Money’ functionally. All of these are ‘Perspectives’ and are correct.
is what Does
It is a Medium of Exchange
But everything that can
be exchanged for value
is not money
These things aren’t generally
acceptable as ‘ Medium Of Exchange’
and hence don’t qualify as ‘Money’
(anything that is
generally accepted as
payment) is more
efficient than
(trading goods/services
for goods/services)
Why isn't it a good
idea for me to try to
pay my home
electricity bill by
giving economics
lectures to people
at the power
company?
Barter requires a double coincidence of wantsYou want the good/service that the other guy has to offer,
and he wants the good/service that you have to offer
Money performs certain
Essential Functions
For anything to qualify as ‘
Money’ it must performs all
Essential Functions.
FUNCTION # 1
MEASURE
OF VALUE
Money measures the value of
various goods and services
which are produced in an
economy.
FUNCTION # 2
MEDIUM OF
EXCHANGE
Money facilitates
transactions of goods and
service as a medium of
exchange.
FUNCTION # 3
STANDARD OF
DEFERRED
PAYMENTS
Money, besides being the
basis of current
transactions, is also the
basis of deferred payments.
FUNCTION # 4
STORE OF
VALUE
Money helps people store
surplus purchasing power
and use it whenever they
want.
Given that I'm paying the power company with money,
why would it probably be a waste of time to drive
down to their office (which is 40 miles away) and pay
in cash?
Because it's
inconvenient and I
don't need to. It's
much easier to write a
check and mail it in,
or to have money
debited from my bank
account
Since the funds in your
checking account balance
are easily available for
spending (through an ATM
withdrawal, a debit card,
online bill payments, etc.),
they count as money, too.
Are the main form of money in our society
BANK DEPOSITS CASH IN CIRCULATION
BANK is a
financial
institution
that accepts
deposits
and
makes
loans.
Principles of
Money &
Banking
PRINCIPLE # ONE
PRINCIPLE # TWO
PRINCIPLE # THREE
PRINCIPLE # FOUR
PRINCIPLE # FIVE
T R I M S
Time Risk Information Market Stability