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Money:Introduction
Xu Hu Texas A&M University
Currencies around the world !
Chinese Yuan
US dollar Japanese
Yen
British Pound
Indian Rupee
??????
One observation of the use of “money”
Selling a used laptop on eBay
Some Buyer on
the Internet
Pay via deposit transfer
Brian
An increase in the Brian ‘s checking account balance
Withdraw some cash (green papers) from his checking account
Buy a Mac
• What’s the nature of money?
• How money comes into the existence? (The origins of money)
• What kinds of function money plays?
Shell Shang Dynasty 1766-1050 BC
“Bu” and “ Dao” Chun Qiu, Zhan Guo770 – 221 BC
Farm Tools : Spade , Knife
Coins made by copper
“Jiao zi”Song Dynasty 960–1279 AD
Coins made by silver
Money: Functions
• medium of exchangewe use it to buy stuff
• store of valuetransfers purchasing power from the present to the future
• unit of accountthe common unit by which everyone measures prices and values
Medium of Exchange
Justin Michael
Brian
Imagine a barter economy without medium of exchange, i.e., an economy in which there is no one commodity universally acceptable and people accept this commodity as payment not because they will “consume” the commodity and derive some utility from it but because they can use it to purchase something else.
beer
cornfish
Double Coincidence of Wants
JustinMichael
Brian
Beer
corn fish
Coin
Corn
Coin
Fish
CoinBeer
Brian
Justin
Michael
Mon Tue Wed
Brian
Justin
Michael
Mon Tue Wed
Redeem
or (Repay)
Bill of Exchange
Store of Value
• This function can justify the use of precious metals as money.
• Some precious metal is used for saving, store of value, while it may NOT be used as a medium of exchange.
• Why use money to store the value? There are some other ways to save.
Unit of account
• If some commodity is used as a unit of account, it does not have to enter the transaction.
Brian Justin
=?
Money: Types
1. fiat money (Legal Tender law)– has no intrinsic value– example: the paper currency we use
2. commodity money– has intrinsic value– examples:
gold coins, cigarettes in P.O.W. camps
Discussion Question
Which of these are money? a. Cash
b. Checks
c. Deposits in checking accounts (“demand deposits”)
d. Credit cards
Fiat Money
• View money as a stock, i.e., asset.
• Why people will hold fiat money, since it does not yield interests?
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