topic 1 - purposes of money (1)

  • Created by: Hetal M
  • Created on: 04-10-17 15:26
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  • Topic 1 - Purposes of money
    • money = anything that is accepted to make payment
      • barter to trade goods
        • "double coincidence of wants"
          • 2 parties agreeing a rate of exchange
      • using items with intrinsic value as payment
        • using items instead of money = sell off any extra goods they produce
        • impractical drawbacks = some items wont last for long - e.g. crops and cattle
        • value of an item can vary - e.g. gold
      • using items that represent value as money
        • development of money = items with intrinsic value made into items that represented value
          • intrinsic value items made into notes and coins
            • using paper notes = exchange for an item and get back a receipt
      • modern payments
        • coins, notes, cards, cheques
        • local exchange trading system = system of credits without the need for cash
    • features of money
      • acceptable = trust that the money will be accepted everywhere
        • UK notes = "i promise to pay the bearer on demand the sum of..."
        • money = fiduciary value (faithful)
      • recognisable = need to notice if its real or not
        • security features are added (holograms, watermark, metallic threading)
      • stable = needs to hold value
        • be the same value in the future
        • inflation = same amount buys less in the future
      • divisible = variety of denominations
        • large amounts = pay with notes and receive change
        • bank payments = specific
      • durable = strong enough to be used repeatedly
      • portable = easy to carry (large amounts = notes, small = coins)
      • scarce but sufficient = having the right amount in circulation
        • too much money = inflation rises = value falls
      • homogenous = looks and feels the same
        • designs may vary - new design = early release = become familiar with it

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