Please enable JavaScript.
Coggle requires JavaScript to display documents.
Money (Characteristics of Money (Limited supply (An economy would not be…
Money
Characteristics of Money
Limited supply
An economy would not be able to function if money actually grew on trees. Inflation would be so bad that there would be no more leaves left on the planet. There must be some way to constrict the supply so that money is earned.
Durability
Currency needs to withstand reasonable wear and tear! Gold coins are a good example of durable money.
Portability
You need to be able to spend your money no matter where you go. Your house is valuable, but you cannot take it with you where ever you go and trade it for other goods.
Uniformity
Currency needs to be complicated enough, and produced with enough uniformity so that it can not be counterfeited
Acceptability
Whatever form of money you use must be acceptable to function. bitcoin is valuable, but I can not trade bitcoin for a sandwich at subway.
Divisibility
We need varying units of smaller value to trade effectively. Livestock is not divisible. If you cut a cow in half it looses all of its value.
Functions of Money
Store of value
Money cannot depreciate at an unacceptable rate. Bananas are a particularly bad form of currency since they last only a few days.
There are certain things that are better stores of value than money, like houses and baseball cards because money suffers from inflation. However , since money is more liquid than these assets, it is an acceptable store of value
Medium of exchange
This is the most important function. Without a medium of exchange, we would resort back to the barter economy.
In a barter economy you can only make a trade if you just happen to need exactly the same good or service the other party is offering . If I am a dentist , I can only trade with people who have bad teeth and hope they have what I need.
Unit of Account
We need to be able to say how much something is worth to compare the values of tradeoffs. I might trade a signed Baby Ruth baseball card for a Baby Ruth candy bar if I did not know the dollar amount of the card's worth.
-