Cambridge International AS and A Level Economics Second Edition
This is a short summary to the topic “Money”. The first few key points to remember are the functions and characteristics of money, which you will find useful in AS Economics Exams. Be careful not to mix the characteristics and functions of money! There is often questions on characteristics/ fun...
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Microeconomics AS
Money
Barter and its advantages
- required double coincidence of wants
- difficult to compare the value of different goods and services
- products might be indivisible (animals)
- products may be difficult to store while seller is looking for a buyer
Cash and bank deposits, cheques, near money and liquidity
- bank deposits: money held in accounts with a financial institution
- cash: notes and coins, most liquid form of asset
- near money: quasi money, not a medium of exchange, an asset that can be converted into
money quickly
- cheque: a means of payment, not a form of money
Functions of money
- a medium of exchange
- a measure of value or unit of account: allows goods of different values to be compared
- a standard for deferred payment: borrowing money (encourages the provision of credit
and so acts as an incentive to trade)
- a store of value or wealth: money does not physically deteriorate and is inexpensive to
store, however, money faces deterioration of value due to inflation (purchasing power)
Characteristics of money
- acceptability
- divisibility: can be divided into smaller units (RM to sen)
- portability: so that it can be carried around
- durability: physically durable, although new ones need to be printed later
- scarcity: this factor makes it worthy
- stability of supply: over a long period of time
- recognisability: confidence
- uniformity: coins or notes used have exactly the same value
- stability of value: over a period of time, inflation
Notes by Xuan
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