What+is+Money

**What is money**? Money is an object that is generally used for payment for goods and services and repayment of debt in a country. There are three functions of money to be: medium of exchange, a store of value, and unit of account. The most important functions of money is the medium of exchange. It makes transactions possible. **Medium of exchange** is something that is used for purchasing goods and paying for somebody‘s service. If money did not exist the best way to purchase something or get a service done would have been the barter method. The barter system could have been used only when both partners would have agreed to sell goods in exchange of other goods. This requires both buyers and seller to want the goods which is not always the case. Money must hold its value over the time to be a medium of exchange. **Store of value** is something that holds wealth money needs to be durable if it is store of wealth. Money is not the only way to store of wealth, many others store of value exist such as land works of art, or stamps. Money is not the best store of value because it goes down with inflation. Money is more liquid than other stores of value because it is also a medium of exchange. Money is an easily transported store of value that can be found in number of denominations from pennies to bill. **Unit of account** lets people put price on goods people know the value of good in terms of money and compare the value of one goods to another .This unit of account is determined when both the seller and the buyer of a good to come a decision about the amount to be sold or to be bought. ** There are eight characteristics of money: ** **1. Acceptable** people will take it in exchange for goods. **2. Portable** able to take with us. **3. Divisible** separate, can be divided in pieces. **4**. **Homogeneous** money should have the same color and look so that is has the same value to people. **5. Easily recognized** we need to know it is money; when we see it. **6. Not easily copied** cannot be printed by anyone but the bank of Canada **7. Controlled by central** **authority** bank of Canada. **8. Durable** last for long time **Types of money Fiat money** is the currency money. It has **value** only by government order. Government decides (typically notes and coin from central bank, such as Federal Reserve System in U.S). **Commodity money** such as scarce precious metals. Metals such as gold silver, copper conch shells, or beads. Commodity money has value based on demand and supply of that good .commodity money comes from what it is made of. **Information in this document is referenced from:** Class notes and lectures by Dr. Stephanie Powers March 2011, and from the website : []
 * What is Money**