what is money?
TRANSCRIPT
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LESSON # 1
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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?
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Let’s start by answering
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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.
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is what Does
It is a Medium of Exchange
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But everything that can
be exchanged for value
is not money
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These things aren’t generally
acceptable as ‘ Medium Of Exchange’
and hence don’t qualify as ‘Money’
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(anything that is
generally accepted as
payment) is more
efficient than
(trading goods/services
for goods/services)
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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?
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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
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Money performs certain
Essential Functions
For anything to qualify as ‘
Money’ it must performs all
Essential Functions.
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FUNCTION # 1
MEASURE
OF VALUE
Money measures the value of
various goods and services
which are produced in an
economy.
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FUNCTION # 2
MEDIUM OF
EXCHANGE
Money facilitates
transactions of goods and
service as a medium of
exchange.
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FUNCTION # 3
STANDARD OF
DEFERRED
PAYMENTS
Money, besides being the
basis of current
transactions, is also the
basis of deferred payments.
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FUNCTION # 4
STORE OF
VALUE
Money helps people store
surplus purchasing power
and use it whenever they
want.
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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?
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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
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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.
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Are the main form of money in our society
BANK DEPOSITS CASH IN CIRCULATION
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BANK is a
financial
institution
that accepts
deposits
and
makes
loans.
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Principles of
Money &
Banking
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PRINCIPLE # ONE
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PRINCIPLE # TWO
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PRINCIPLE # THREE
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PRINCIPLE # FOUR
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PRINCIPLE # FIVE
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T R I M S
Time Risk Information Market Stability