Money Flashcards
Money
anything which is generally acceptable as a means of payment for goods and services.
Barter
the direct exchange of one good/service for another good/service.
Liquidity
the extent to which a financial asset can be turned into cash.
Functions of Money in a modern economy
1) Medium of exchange
2) A unit of account
3) A store of value
4) A standard of deferred payment
Medium of exchange
An acceptable means of payment between buyers and sellers (no need for barter).
A unit of account
A measure of value that enables the value or prices of different products to be compared.
A store of value
A form of wealth that can be saved and spent at a later date.
A standard of deferred payment
Allows consumers to purchase today but pay back in the future (buying on credit).
Characteristics of money in a modern economy
1) Acceptable - Generally accepted in society.
2) Portable - Easy to carry around.
3) Scarcity - Needs to be limited to ensure it is valuable
4) Durable - Needs to be hard-wearing (last over time)
5) Divisible - Can be divided into smaller denominations
6) Stable value - Value needs to be fairly stable over time
7) Recognisable - Easily recognised to maintain confidence
8) Difficult to counterfeit - Hard to fake or copy
Functions vs Characteristics of Money
Functions of money - what it does.
Characteristics of money - what it is / what it is like.
Cash
notes and coins issued in a country which are legal tender. (Very Liquid)
Bank Deposits
deposits of money (often in electronic form) in financial institutions
Cheques
a method of payment that transfers money from one account to another
The reward for parting with liquidity
Interest
- If a person deposits cash in a savings account, which they can no longer use for a period of time, their reward is the additional sum of money (interest) they receive (plus their original deposit back).
