T1 Purposes Of Money Flashcards
What is money?
- anything that is generally accepted as means of payment
- comes in the form of cash and bank deposits
What is barter?
- the exchange of goods
- way of trading before money
What were the problems with bartering?
- requires a double coincidence of wants for trade to take place
- it is difficult to decide on how many units of a good should be exchanged for another
What is an item with intrinsic value?
- item worth something in their own right
- the value of the item can vary e.g. price of gold has changed over the years
- also not easy to make item divisible
How did money develop?
- notes and coins were created as one single medium of exchange
- they had no intrinsic value - the metal and paper had no value
- but they had represented value as it was accepted they were worth something
What are the 8 characteristics of money?
- acceptable
- recognisable
- stable
- divisible
- durable
- portable
- scarce but sufficient
- homogenous
What are the functions of money?
- measure value - the value of something is measure in terms of money
- make payments - means of exchange
- save - store of value - money is used to store for future use
- borrow - a means of borrowing and repaying debt
How is money used as a store of value
- money can be saved and stored as wealth so that it can be spent at a later date
- the interest on money when it is saved must been equal to the rate of inflation to maintain its value
How does money enable borrowing?
- if people borrow today, then they can pay back their loan in the future in a way that is acceptable to the person who made the loan
- the cost of borrowing is the rate of interest
Specialisation
- money facilitates specialisation
- workers specialise then get paid a wage/salary
- with this wage workers can pay other workers for the goods and services they provide
How does inflation affect money?
- inflation increases cost of living
- this is because a given amount of money can buy less - decreasing the purchasing power of money
How can holders use current accounts?
- medium of exchange - e.g. make a transfer, pay by direct debit/standing order
- store of value - save money for a later date
- they can borrow using a current account e.g. overdrafts
How children use money
- young children receiving an allowance are likely to spend most of their money - they may save what they receive for higher value items that they want and for unspecified items in the future
How young adults use money
Young adults that have just left h9me and are earning a low wage are likely to spend most of their money on living expenses
How adults use money
adults with more job experience and better wages may spend money on living expenses and ‘fun items’, borrow money through a mortgage to buy a home and save for the future
How parents use money
- might borrow money to pay for items such as a family sized car
- they may sound most of their income on living expenses and gifts for their children and find it difficult to save
How middle-aged adults use money?
Most likely to have paid off their debts and to be saving for their old age
How pensioners use money
Retired people are more likely to be spending all their income which have fallen since their years in employment
Who signs the amount?
Chief cashier of the Bank of England
Money is said to have …. value
- fiduciary (faith) - this is based on trust in the banking system
- the faith will mean that sellers will receive funds transferred between bank accounts electronically
What are the features of cash to prevent fraud?
- watermarks
- UV features
- complicated designs
- see through windows
- raised print
How is money homogeneous?
- looks and feels the same
- makes it more recognisable and acceptable
- cash tends to have the same main features
- when cash changes, there is a lot of prewarning
money as a unit of account?
- money offers a standard measure of financial value
- compare prices over time
- used in accounting and bank statements to record transactions and provides balances
What’s legal tender?
Currency described as ‘legal tender’ can be used to settle or clear a debt in court
What’s bitcoin?
- electronic form of currency
- decentralised - not backed by back e..g Bank of England
- hard to trace
- made anomalously
What is purchasing power?
Quantity of goods and services it can buy
How to maintain/grow purchase power
Interest rates which are changed in accordance to inflation
What’s the purchasing power in other countries?
- the same goods can cost different amounts in different countries
- exchange rates
