G9 10 econs_sept_cont.

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G9 10 econs_sept_cont.

  1. 1. Money and Finance SEPTEMBER 2012
  2. 2. What is Money? A medium of exchange A store of value A measure of value A means of deferred payment
  3. 3. Where Does the Money Come From? Notes and coins circulating in an economy Deposits with banks and other financial institutions MONEY SUPPLY
  4. 4. Financial Assets Cash can lose its value over time as prices rise. Financial assets can provide a good store of value, hence they are a good form of money, especially if they can be converted easily into cash. We say they are liquid assets, or are near money. E.g. personal savings can be withdrawn immediately but savings tied up in a bond for two years will not become a medium of exchange until the bond has matured.
  5. 5. Physical Assets E.g. jewellery, valuable antiques. A good store of value but are not generally acceptable in exchange for other goods and may be difficult to sell quickly to raise cash. Hence, they are not near money. They can go down in value over time if they become less collectable or damaged.
  6. 6. Velocity of Circulation The number of times notes and coins are exchanged, or circulate in an economy over a period of time. E.g. you make $1 in return for some work. You buy a magazine for a $1. The shopkeeper uses that $1 to buy gas. This dollar has been used 3x and created $3 of income.

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