Topic 1 - Purposes of money Flashcards
define money
anything that is widely accepted as a means of making payments
what are the different forms of modern day money?
coins, notes, electronic balances held in bank accounts.
what are the different purposes of money
- main purpose is to make payments.
- to set the price of goods
- ability to save money to make payments in the future
- ability to borrow from someone else and repay the lender in the future
What system was used before money?
a system of barter to trade goods and services
what does bartering require?
- relies on two parties agreeing on a rate of exchange
- a double coincidence of wants
what is a double coincidence of wants?
- when person A has item A and wants item B while person B has item B and wants item A
What are items used by communities around the world as money? (Give 3 examples)
cowrie shells
feathers
leather
oxen
pigs
stone
salt
vodka
what are problems with things used before money to exchange good?
-some items cant be divided into small amounts to enable people to make low-value purchases or to give exchange
-not easily portable
- not durable, animals may die or grain may perish
-
examples of intermediate items:
cattle
shells
gold
what is the use of intermediate items?
the use of all items that all locals value as money allows people to sell any surplus or specialist goods they produce for this item.
- sellers can use the item they have been paid to buy other goods
What was wrong with intermediate items being used as money?
They had value of there own that determined what value of it is worth something
-e.g. gold
- a farmer may want 1 ounce of gold for 2 cows, then three months later want 1 once of gold for 4 cows.
- the value of the gold has increased as its become scarcer and its value rises
What replaced intermediate items?
Items that represent a value of money rather than items worth a value of money
What was Chinas solution to intermediate items?
-in China spades and knives, which had intrinsic value of their own, were used in barter systems.
-then coins were created thar had roughly the same value of spades and knives allocated too them.
what material were the coins made of?
low value metals such as bronze or copper
- smaller than the real item thus durable and
How did Paper notes as money come about work in ancient china?
Those with coins would exchange they’re load of coins for a receipt stating the value of the coins so they don’t have to store as many coins
What are the 8 features of money?
- Acceptable
- Durable
- Divisible
- homogeneous
- Portable
- Recognisable
- Scarce but sufficient
- Stable
What are the 4 functions money must perform?
Measure value
Make payments
Save
Borrow
What is a consideration when using money?
It’s current and future purchasing power.
The power of money is the quantity of goods and services it can buy
What is inflation?
The sustained increase in the general price level
- it increases the cost of living
- thus a given amount of money can buy less
What is possible for an account holder when using a current account?
- ability to use it as a medium of exchange, making transfers or pay by direct debit / standing order
- store of value, saving money for a later date
- you can borrow using a current account e.g. overdraft
What’s the difference between a current and savings account?
Savings accounts offer high rates of interest
Some saving accounts require notice if the account holder wishes to withdraw funds
What is using money to meet changing needs?
How people need to spend, save and borro changes over the course of their life
How are young people likely to use there money?
Most likely to spend all their money on living expenses as a young adult.
A child will also be likely to spend their allowance.
How are adults likely to spend there 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.
- Parents may borrow money to pay for a larger home or larger cars for their childrens luxuries
- Middle Aged people are likely to have paid there debts and be saving for their old age
How are pensioners likely to spend there’s money?
Likely to be spending all of their income which will have fallen since their years in employment
