Professional Documents
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because the gold itself was valued and had other uses. Commodity money gave way to the next
stage-representative money.
Representative money is a certificate or token that can be exchanged for the underlying
commodity. For example, instead of carrying the gold commodity money with you, the gold
might have been kept in a bank vault and you might carry a paper certificate that represents-or
was backed-by the gold in the vault. It was understood that the certificate could be redeemed
for gold at any time. Also, the certificate was easier and safer to carry than the actual gold. Over
time people grew to trust the paper certificates as much as the gold. Representative money led to
the use of fiat money-the type used in modern economies today.
Fiat money is money that does not have intrinsic value and does not represent an asset in a vault
somewhere. Its value comes from being declared legal tender-an acceptable form of paymentby the government of the issuing country. In this case, we accept the value of the money because
the government says it has value and other people value it enough to accept it as payment. For
example, I accept U.S. dollars as income because Im confident I will be able to exchange the
dollars for goods and services at local stores. Because I know others will accept it, I am
comfortable accepting it. U.S. currency is fiat money. It is not a commodity with its own great
value and it does not represent gold-or any other valuable commodity-held in a vault somewhere.
It is valued because it is legal tender and people have faith in its use as money.
There have been many forms of money in history, but some forms have worked better than
others because they have characteristics that make them more useful. The characteristics of
money are durability, portability, divisibility, uniformity, limited supply, and acceptability. Lets
compare two examples of possible forms of money:
1. A cow. Cattle have been used as money at different points in history.
2. A stack of U.S. 20-dollar bills equal to the value of one cow.
Lets run down our list of characteristics to see how they stack up.
1. Durability. A cow is fairly durable, but a long trip to market runs the risk of sickness or
death for the cow and can severely reduce its value. Twenty-dollar bills are fairly durable
and can be easily replaced if they become worn. Even better, a long trip to market does
not threaten the health or value of the bill.
2. Portability. While the cow is difficult to transport to the store, the currency can be easily
put in my pocket.
3. Divisibility. A 20-dollar bill can be exchanged for other denominations, say a 10, a 5,
four 1s, and 4 quarters. A cow, on the other hand, is not very divisible.
4. Uniformity. Cows come in many sizes and shapes and each has a different value; cows
are not a very uniform form of money. Twenty-dollar bills are all the same size and shape
and value; they are very uniform.
5. Limited supply. In order to maintain its value, money must have a limited supply. While
the supply of cows is fairly limited, if they were used as money, you can bet ranchers
would do their best to increase the supply of cows, which would decrease their value. The
supply, and therefore the value, of 20-dollar billsand money in generalare regulated
by the Federal Reserve so that the money retains its value over time.
6. Acceptability. Even though cows have intrinsic value, some people may not accept cattle
as money. In contrast, people are more than willing to accept 20-dollar bills. In fact, the
U.S. government protects your right to use U.S. currency to pay your bills.
Name: ____________________
Date: ____________
Period: _____
Well, it seems udderly clear at this point thatbased on the characteristics of moneyU.S.
20-dollar bills are a much better form of money than cattle.
To summarize, money has taken many forms through the ages, but money consistently has three
functions: store of value, unit of account, and medium of exchange. Modern economies use fiat
money-money that is neither a commodity nor represented or backed by a commodity. Even
forms of money that share these function may be more or less useful based on the characteristics
of money.
Podcast about money Questions
Listen to the podcast about money and answer the questions.
What are the three functions of money?
1. __________________________________
2. __________________________________
3. __________________________________
What is representative money?
Name: ____________________
Date: ____________
Period: _____
After the podcast take your textbook and read through Chapter 10 Section 1 and answer
the following questions by analyzing the cartoon on money in the textbook on page 254 by
answering the following questions.
Why does the frog fail to fit into any of the three acceptable sources of value?
Name: ____________________
Date: ____________
Period: _____
Money Simulation
1. First 10 students will be randomly picked to be the specialty shop owners.
a. Specialty shops will be cheese, vegetables, fruit, milk, bread, clothing, shoes,
meats, furniture, and advice. (print at least two pages of each shapes item list for
the activity)
i. 1 dollar, a cow, and determined item: is the price of cheese, vegetables,
fruit, milk, and bread.
ii. 2 dollars, a cow, and determined item: is the price for clothing, shoes,
and meats.
iii. 3 dollars, a cow, and determined item: is the price of furniture.
iv. 4 dollars, 1 cow, and determined item: is the price of advice.
2. The first 10 will be given a stack of paper that will represent the products in their shop.
3. The rest of the class will be given one of three types of currency or products that the
students will need to trade or barter with.
a. Cow: students will need to barter with each shop owner to determine what they
can trade for one cow. Cows can also be traded for 4 dollars or a designated item.
b. One Dollar: Students will be able to trade one dollar for any of the products in the
shops or could trade with other types of currency. One cow equals 4 dollars.
Dollars cannot be traded for the other items.
c. Items for trade: This can be any item in the picture and students will need to
barter with shop owners for items and hope that they would want that item in
return. The item owners can barter with cows but they have to come to an
agreement. Items cannot be traded for dollars.
4. The 10 shop owners will be set up around the room. With booths and price signs.
5. Students will go ahead and start trading items when the time starts.
6. The instructor will walk around watching the students to see if they understand the
assignment.
Name: ____________________
Date: ____________
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Bike
Cookies
Bucket of Beads
Laptop Computer
Cell Phone
Blanket
Hammer
Diamond
iPad
Puppy
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The currency is still new, though, and is far from mainstream acceptance.
I'm only starting to wrap my head around the potential upside, downside, regulatory issues,
monetary policy issues, taxation issues, consumer protection issues that this innovation
represents, Sen. Mark Warner (D-Va.) said at the Tuesday hearing.
An aide with the Senate Homeland Security and Government Affairs Committee, which also
held a hearing on bitcoins, said that staff are following up on the subject and plan to issue a
comprehensive report.
Regulators have also shown that theyre not entirely ready to give the currency a pass.
On Thursday, the Federal Election Commission (FEC) deadlocked on a vote to allow bitcoins to
be donated to political campaigns. The agencys advisory opinions require support from a
majority of its members for passage, but the commission hit a stalemate with a 3-3 vote.
The FEC vote is sort of good analogy for how the government is looking at bitcoin, Brito said.
Theyre not saying no; theyre not saying yes either."
The Internal Revenue Service is working on guidance on how to treat bitcoin for tax purposes.
Financial regulators like the Commodity Futures Trading Commission have also expressed an
interest in the money.
One problem for bitcoin oversight is that it can be used to purchase goods like a currency, but it
can also be used to send money around the world, like a security, or as an investment vehicle,
like a stock.
That can pose a problem for financial regulators, Englund with the Bitcoin Foundation said.
I think what Washington still has yet to wrap their head around is that bitcoin does not fit in one
bucket. Depending on the context of the use, it fits in different buckets and therefore will have
different regulatory guidelines apply, she said.
For the most part, bitcoin watchers dont expect there will be many new laws or regulations to
increase the governments oversight and crack down on fraud.
I dont think theyre going to be issuing regs, said Timothy McTaggart, a partner at the Pepper
Hamilton law office. I think they have the power already.
According to bitcoin backers, the biggest problems facing bitcoins in the U.S. is banks aversion
to get involved with bitcoin firms and the difficulty for exchanges to register in each state in the
country, which is necessary to get off the ground.
The largest bitcoin exchange is currently in China, and Englund said that time is running out for
the U.S. to get ahead of the curve.
Were in a very limited window for the U.S. to lead in this innovation and that windows not
going to stay open for very long, she said.
Name: ____________________
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Name: ____________________
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3. What is currency?
a. way to pay for goods and services
b. Paper money and coins
c. A unit of account
d. All of the above
4. What are the three functions of money?
a. Payment, Form of Currency, Medium of Exchange
b. Medium of Exchange, Durability, Unit of Account
c. Medium of Exchange, Unit of Account, Store Value
d. Unit of Account, Commodity, Portability
5. BitCoin is
a. A new form of currency
b. Unregulated currency
c. A way to pay for things on the Internet
d. All of the above
6. Who first proposed a National Bank for the United States?
a. James Madison
b. Alexander Hamilton
c. Thomas Jefferson
d. Sam Adams
7. What happened in 2008?
a. A massive economic boom
b. The Housing market plateaued
c. A massive Recession started
d. Nothing
8. What are some of the functions of Financial Institutions?
a. Storing Money, Saving Money, Losing Money
b. Loans, Credit Cards, Interest
c. Storing Money, Loans, Mortgages
d. Credit Cards, Saving Money, Profit
9. Which President helped create the Federal Reserve?
a. Theodore Roosevelt
b. Franklin Roosevelt
c. Herbert Hoover
d. Woodrow Wilson
10. What is the Federal Reserve?
a. A Centralized Bank that helps regulate the economy
b. A Centralized Bank that only produces money
c. Just a Bank
d. A Credit Union
11. What are some of the functions of the Federal Reserve?
a. Issuing Currency, Stabilizing the Economy, Create Laws
b. Check Clearing, Bank Examinations, Lender of Last Resort
c. Stabilizing the Economy, Creating Coins, Supervising Lending Practices
d. Bank Examinations, Issuing Currency, Economic Reforms
Name: ____________________
Date: ____________
Period: _____
Name: ____________________
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Name: ____________________
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c. Just a Bank
d. A Credit Union
11. What are some of the functions of the Federal Reserve?-B
a. Issuing Currency, Stabilizing the Economy, Create Laws
b. Check Clearing, Bank Examinations, Lender of Last Resort
c. Stabilizing the Economy, Creating Coins, Supervising Lending Practices
d. Bank Examinations, Issuing Currency, Economic Reforms
12. What is Monetary Policy?-D
a. How money is circulated in the Economy
b. How the Federal Reserve influences GDP
c. How the Federal Reserve regulates Inflation
d. How the Federal Reserve makes decisions about real GDP and Inflation
13.___E___Money
14.___H___Unit of Account
15.___L___Medium of Exchange
16.___F___Money Supply
17.___M___Liquidity
18.___I___Default
19.___B___Treasury
20.___C___Inflation
21.___D___Moneterism
22.___K___Interest Rates
23.___G___Reserves
24.___J___Financial Crisis
25.___A___Currency
or a massive Recession
K. The rate set for the price of money borrowed
L. Anything used to determine value during the
exchange of goods and services
M. The ability to be used as, or directly converted
into cash
Name: ____________________
Date: ____________
Period: _____
Name: ____________________
Date: ____________
Period: _____
Student Names:
____________________________________________________________
CATEGORY
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