The Importance of Money

Topics: Money, Currency, Economics Pages: 3 (812 words) Published: April 24, 2012

In this topic we will be studying and describing the fundamental role that money plays in facilitating exchange and, thereby, allowing for specialization. Why Specialization? Then you need to think about it: why money leads to specialization? why an economy needs to use money at all . We may also discuss on the disadvantages of barter. The other thing that need to be focused on is measurement of money. Why we have different type of measurement of money supply? What is the purpose? Last and not least the idea of the payments system, that is, a discussion on the evolution of the payments system from precious metals to currency and checks to electronic funds transfer services—such as automated teller machines (ATMs) and debit cards. For those who be in the forum, try your best to answer the questions that have been given here. These are some of the questions that we are to discuss it in first seminar.


I. Meeting the Needs of Exchange with Money

A) Money makes exchange more efficient and allows for specialization. B) The type of exchange known as barter, where goods and services are exchanged directly for other goods and services is inefficient because it incurs high transactions costs.

C) Voluntary trade may be sidestepped by using government allocation to distribute goods and services, but this is unlikely to be successful because it ignores market forces.

D) Money has four key functions that make it the most efficient means of trade: 1. Money acts as a medium of exchange, which is anything that is generally accepted as payment for goods and services or in the settlement of debts. 2. Money is a unit of account, which is a way of measuring value in the economy in terms of money. 3. Money is a store of value, in that it is an asset or a thing of value that can be owned and is, therefore, a component of wealth. 4. Money offers a standard of deferred value in credit transactions.

E) The value of money depends...
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