Functions & Charactaristics Flashcards
Medium of Exchange
An object through which something is transmitted or carried on; transferred
Ex: River, phone, veins
Measure of Value
A reference standard used to figure out the worth of something
Ex: paper clips used for buying a sandwich
Store of Value
To reserve or put away for future use; of material worth
- Inflation shrinks your store of value
- When you put your money in, you expect that it stays the same and doesn’t decrease in value,
- You want purchasing power to buy what you want 5 years later
Portable
Physically small and easy to move from place to place
Durable
Something that can last and withstand a really long time
Divisible
Something that you can break it into smaller parts but still usable for the same purpose
Relatively Scarce
Something that we don’t have too much or too little of
“Money doesn’t grow on trees”
Barter
Trading goods and services directly without using money.
Commodity Money
Items that have value in themselves and are used as money, like gold or silver.
Precious Metal Coins
Coins made from valuable metals like gold or silver.
Gold-Backed Paper
Paper money that can be exchanged for a fixed amount of gold.
Substitute
Something used in place of something else, like paper money used instead of coins.
Inconvertible Flat
Paper money that cannot be exchanged for gold or silver; its value comes from government regulation.
Mass Produced
Items made in large quantities, often by machines.
Checks
Written orders directing a bank to pay money from an account to someone else.
Electronic
Digital forms of money, like online bank transfers or payments.
Future
Refers to new and emerging forms of money, like cryptocurrencies.
Why is trust so important in how modern money works?
Trust is important in how modern money works because people need to believe that the money they use will hold its value and be accepted by others for goods and services.
What are banks for?
- To make a profit off of loans
How do banks make profit?
- Banks Pay Interest Rates:
- Banks offer interest to attract people to deposit their money into savings accounts.
- They Loan Out the Money:
- Banks take the deposited money and lend it to borrowers (like individuals or businesses) at a higher interest rate.
- Borrowers:
- Borrowers pay back the loans with interest, and the difference between the interest paid to depositors and the interest received from borrowers is the bank’s profit.
What else do banks provide?
- Safe place to keep money (FDIC)
- Provides funds for large purchases
- Affects the supply of money through the multiplier effect
What is the Multiplier Effect?
Occurs when a deposit creates more money than the original deposit amount. This is possible because of the reserve requirement
What is a reserve requirement?
A rule that says banks must keep a certain percentage of their deposits in reserve and not lend it out
For example, if the reserve requirement is 10%, and you deposit $100, the bank must keep $10 in reserve and can lend on $90 to borrowers. This ensures banks have enough money on hand to meet demands.
What is cash leakage?
When people dont spend all their money right away or the bank doesn’t spend it all right away,
