Throughout history, a wide variety of items have served as money. These include gold, silver, large stone wheels, tobacco, beer, dog teeth, porpoise teeth, cattle, metal coins, paper bills, and checks.
All of these types of money should be judged on how well they accomplish the functions of money. Money is what money does.
To be a good medium of exchange, money must be accepted by people when buying and selling their productive resources and when buying and selling goods and services. It should be portable or easily carried from place to place. It also must be divisible so that large and small transactions can be made.
To be a good store of value, money must be durable so it can be kept for future use. It also should have a stable value so people do not lose purchasing power if they use the money at a later time.
To be a good standard of value or unit of account, money must be useful for quoting prices. To accomplish this, money must be familiar, divisible, and acceptable.
- Define and explain the functions of money.
- Describe the characteristics that are needed to enable money to carry out these functions effectively.
Evaluate each item below as to how well it would perform the functions of money. In your evaluation, discuss how well the item would serve as a medium of exchange, a store of value and a standard of value. As you make your evaluations, be sure to consider portability, uniformity, acceptability, durability, and stability in value.
- Large stone wheels
- Copper coins
- Pieces of paper printed by a government
- A personal check
What's the rationale for adopting the US dollar as "legal tender" in Argentina?
Which of the 3 functions of money does the Argentinian peso fall short on?
What does the author say is behind the movement to establish new currencies and replace old currencies?
How is currency like Beanie Babies?
Why don't we use Beanie Babies as currency?
Which function of money would a Beanie Baby have problems fulfilling?
Why aren't Disney Dollars accepted outside the Disney theme parks?
Adapted from Morton, John. Advanced Placement Economics: Macroeconomics. Copyright 1996 National Council on Economic Education: New York. p 141.