Understanding Money


Understanding Money

Money is a non-specific physical commodity that typically is accepted as payment for services and goods and payment of debts, including taxes, in a specific country or socio-cultural context. Money is used in interactions between individuals, organizations, institutions, governments and the market place. Money can be in the form of coins, banknotes, bills and other financial instruments. The supply of money is constrained by the ability of people to produce it, which creates a competitive pressure for banks to issue large amounts of money.


The size of the money supply, which depends on the production and availability of goods and services within an economy, determines the levels of activity in the economy. Money is required to facilitate transactions, provide liquidity in the markets and provide incentives for businesses to invest. An increase in the supply of money causes a reduction in the demand for it and a corresponding reduction in the income of the economy. The Federal Reserve, which controls the supply of most of the money in the United States, tries to keep long term levels of inflation low and interest rates low, which discourage investment in assets and make investments more risky. When the economy expands, the Federal Reserve controls the money supply to maintain the desired level of inflation.


Money is a means of exchange that changes hands rapidly, either immediately or over time. In its most basic form money is a promise to pay cash for goods or services upon receipt. Money is transferred from seller to buyer during a transaction, with the money serving as a promise to repay to the seller, or a credit, debit or bond, whatever you choose to call it. If you lose your shirt, you can just get another. But there are many complications that make money transfer inefficient.


Central banks control the money supply by controlling the total amount of bank deposits that can be withdrawn by any individual or institution. The three largest central banks in the world are the Fed, the Bank of Japan, and the Eurozone. These three have been trying for decades to develop a system that would make paper money worthless and eliminate the need for bank deposits. This system has been called the Positivization Process (PIP), a system that many critics say is not really different than the idea of a gold standard.


Money, unlike goods, is not designed to increase in value. Instead, money is merely a marker, a way to exchange one thing for another. Money, like food and other goods, increases in value due to demand and supply. So, if you want to buy a car, you can drive around town and look at the cars, look at the billboards, and see what the prices are, and decide whether you want to pay $7.00 for that new car, or bargain with the local car dealer until you are able to get the price you want for the car that you really want. If you decide to bargain, the dealer knows that you want the car, and he will offer you the best price possible based on the demand for his car.


Money, as it relates to bartering, is a non-market-determined money, meaning that prices do not change based on supply and demand, because no commodity is being exchanged. Barter exchanges work on a voluntary basis, and a mutual understanding between the parties to the exchange, namely you, and the person who is willing to sell you his goods for a price less than the market-determined price for that commodity, which is called the cash price. This price is then negotiated by you and your counter-part, usually with the help of either a money transfer agent, a barter broker, or a money transfer service.


Money, as it relates to these exchanges, is simply a kind of good that has certain attributes that benefit the parties to the exchange. For example, money has interest, and since it is a form of good, people tend to be willing to pay money for it. Also, money is easily transferable, which makes it a popular medium of transaction among businesses and individuals. Finally, money, as it relates to this type of exchange, is a very good medium of exchange because, unlike most other commodities, it is not hard to ship, and it can be easily replaced, unlike most other goods. So money makes perfect sense to use as a medium of exchange.


The key takeaways are that money is needed as a medium of exchange, which is why it is used so widely. It is widely accepted because it is a form of good that people generally accept. It is widely accepted because it is easy to transfer, which again makes it a great medium of exchange. Lastly, it is a good medium of exchange because it is a form of good that generally increases in value. These are the key takeaways when it comes to money.


No comments yet, be the first by filling the form.