Category: Money and Banking

14.1 Defining Money by Its Functions Money is what people in a society regularly use when purchasing or selling goods and services. If money were not available, people would need to barter with each other, meaning that each person would need to identify others with whom they have a double coincidence of wants—that is, each party…

Learning Objectives By the end of this section, you will be able to: Banks and money are intertwined. It is not just that most money is in the form of bank accounts. If banks choose to hold only limited reserves, the banking system can literally create money through the process of making loans. Let’s see…

Learning Objectives By the end of this section, you will be able to: Somebody once asked the late bank robber named Willie Sutton why he robbed banks. He answered: “That’s where the money is.” While this may have been true at one time, from the perspective of modern economists, Sutton is both right and wrong.…

Learning Objectives By the end of this section, you will be able to: Cash in your pocket certainly serves as money; however, what about checks or credit cards? Are they money, too? Rather than trying to state a single way of measuring money, economists offer broader definitions of money based on liquidity. Liquidity refers to how quickly…

Learning Objectives By the end of this section, you will be able to: Money for the sake of money is not an end in itself. You cannot eat dollar bills or wear your bank account. Ultimately, the usefulness of money rests in exchanging it for goods or services. As the American writer and humorist Ambrose…

Figure 14.1 Cowrie Shell or Money? Is this an image of a cowrie shell or money? The answer is: Both. For centuries, people used the extremely durable cowrie shell as a medium of exchange in various parts of the world. (Credit: modification of “Cowry Shell (Cypraeidae)” by Silke Baron/Flickr Creative Commons, CC BY 2.0) Chapter Objectives In this…