Characteristic of Money
To be used as money, an item must have certain characteristics. The five major characteristics of money are durability, portability, divisibility, stability in value and acceptability.
Durability. Durability refers to money’s ability to be used over and over again. Eggs would be a poor choice for money because they are fragile and perishable. Metals such as gold and silver, however, are ideal because they withstand wear and tear well. In fact, many coins minted in ancient times are still in existence.
Portability. Money’s ability to be carried from one place to another and transferred from one person to another is its portability. As a medium of exchange, money must be convenient for people to use. Items that are difficult to carry make poor money.
Divisibility. Divisibility refers to money’s ability to be divided into smaller units. Combining various coins permits buyers and sellers to make transactions of any size. Divisibility also enhances money’s use as a standard of value because exact price comparisons between products can be made.
Stability in value and acceptability. For money to be useful as a store of value, it must be stable in value. Stability in value encourages savings and maintains money’s purchasing power. Most people who save money are confident that it will have approximately the same value when they want to buy something with it as it had when they put it into savings.
Acceptability means that people are willing to accept money in exchange for their goods or services. People accept money because they know they, in turn, can spend it for other products.
Types of Money
Money comes in all shapes and sizes. The items used as money are a reflection of the society in which they are used. Money as a rule includes coins, paper money, checks and near money. Checks or checkbook money usually make up more than 70 percent of the nation’s money supply and nearly 90 percent of the transactions in most countries are completed by writing checks. Because checks are payable to the holder of the check on demand, checking accounts are often called demand deposits. Checks are representative money because they stand for the amount of money in a person’s account. They are generally accepted because the bank must pay the amount of the check when it is presented for payment. Checks, therefore, are considered money because they are a medium of exchange, a standard of value and a store of value. Other financial assets are very similar to money. These assets, such as savings accounts and time deposits are called near money and are not usually considered part of the nation’s money supply. Bills of exchange are examples of near money. Though they are easily accessible, these accounts cannot be used directly to buy goods or pay debts. Depositors, for example, cannot pay bills directly from their savings accounts. Since funds in these accounts can be easily converted into cash, however, they are considered near money.
Sources of Money’s Value
Money must have and retain value. All money falls into three categories according to what gives the money its value.
The three categories of money are commodity money, representative money and fiat money.
Commodity money. An item that has a value of its own and that is also used as money is called commodity money. Throughout history, societies have used many commodities as money. The ancient Romans sometimes used salt as money. Precious metals such as gold and silver and gems such as rubies, emeralds and diamonds have often been used as money. The majority of nations in the world today use currency – coins and paper bills – for money. The Lydians, an ancient people in Asia Minor, minted the world’s first coins about 700 B.C. The Chinese developed the first paper currency, perhaps as early as A.D. 1000 or A.D. 1100.
Representative money. Money that has value because it can be exchanged for something valuable is representative money. Checks are representative money because they can be exchanged for currency as long as the check writer has sufficient funds on account.
Fiat money. Value is attached o fiat money because a government decree, or fiat, says that it has value. Coins and paper money are examples of fiat money. The money has value because the government says that citizens must accept paper money and coins for all transactions.
Essential vocabulary
a.d. – anno domini – нашей эры
b.c. – before christ – до нашей эры
deteriorate – ухудшаться
gem – драгоценный камень
nonperishable – непортящийся
over time – в течение длительного времени
perishable – скоропортящийся
stand for – означать, символизировать
wear and tear – износ, изнашивание
withstand – выдержать, противостоять
Task 2. Translate the following words and word combinations or find Russian equivalents.
relative value
to figure profits and losses
tax receipts
accounting task
to accumulate wealth
to withstand wear and tear
to mint coins
stability in value
durability
acceptability
to make transactions
payable on demand
checkbook money
representative money
fiat money
Task 3.Translate the following sentences into Russian.
Combining various coins permits buyers and sellers to make transactions of any size.
If both of these conditions are met, many people will accumulate their wealth for later use.
Metals such as gold and silver are ideal because they withstand wear and tear well.
Divisibility also enhances money’s use as a standard of value because exact price comparisons between products can be made.
Checks are representative money because they stand for the amount of money in a person’s account.
Acceptability means that people are willing to accept money in exchange for their goods or services.
Task 4. Fill the gaps in the sentences below with the words and expressions from the box. There are two expressions which you don’t need to use.
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Standard of value, portability, fiat money, store of value, stability in value, commodity money, medium of exchange, representative money, acceptability, accumulate their wealth, relative value, durability |
As a ________________, money assists in the buying and selling of goods and services.
Money enables people to judge the ____________ of different items by comparing their prices.
Money’s function as a _______________ is important to record keeping because it provides uniformity to accounting tasks.
As money is nonperishable and keeps its value over time it is considered a ___________.
People save money in order to ______________ for later use.
Money’s ability to be used over and over again is called _____________.
____________ is money’s ability to be carried from one place to another and transferred from one person to another.
____________encourages saving and maintains money’s purchasing power.
Precious metals such as gold and silver have often been used as __________ .
Checks are __________ because they can be exchanged for currency.
Task 5. Find English equivalents for the following Russian expressions and words.
средство обращения
мера стоимости
средство накопления
ведение учета
стоимость затрат
единица бухгалтерского учета
покупательная способность
портативность
делимость
скоропортящийся
депозит до востребования
сберегательный счет
срочный депозит
вексель
товарные деньги
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For the next session
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Text 1. Fiscal Policy
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Task 1. Read and translate the text.
Fiscal policy is one of the tools that governments have to keep the economy on a steady path. The two main components of fiscal policy are changes to the tax system and changes in government spending. But what changes can governments make in these two areas and how do changes affect the growth of the economy?
Let’s look at the tax system and in particular at income tax. Income tax is one of the biggest sources of income for a government. Many governments operate a system called progressive taxation. This means that the more you earn, the more tax you pay. People are usually allowed to keep some of their income without paying any tax. This is called the personal allowance.
The rest of their income is then taxed using the progressive system. For example:
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Income before tax |
Personal allowance |
Tax to pay after allowance |
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&0 – &1,999 |
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10% |
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&2,000 – &29,999 |
&5,000 |
22% |
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&30,000 and over |
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40% |
Governments can decide to change the size of the personal allowance or change the percentage that each income group has to pay. If the economy is growing too fast and demand for goods and services is more than the economy can supply, the government will want to slow down spending.
To do this they can decrease the personal allowance or they can increase the percentage to pay in tax. This will mean people have less disposable income and spending will slow down. If the economy is slowing down too much governments can do the opposite.
What about government spending? How does that affect economic growth? The key to this is something called the multiplier effect. To understand how this works, let’s look at an example. Imagine that the economy is not growing. This will make aggregate demand fall. In turn, productivity falls. This situation means that the nation’s resources are not all being used. In other words, there are surplus raw materials, machines are not being used and workers are unemployed. What the economy needs is a pull in demand for goods and services.
The government can provide this pull by spending a large amount of money on public projects. For example, imagine that the transport department decides to spend &200 million on building a new motorway. This will give work to building companies and jobs to unemployed workers. In other words, more resources are being used and the nation’s productivity is increased.
Companies and workers on the motorway project will save some of the money they earn but also spend some. The money they spend will be income for others in the economy. If half of the &200 million is spent, then the total national income has grown by this much:
&200 million + (0.5 x &200 million)
Each time a proportion of the income is passed on, the economy grows again:
&200 million + (0.5 x &200 million) + (0.5 x &100 million), etc.
In theory, the multiplier effect will continue until there is full employment and the nation’s resources are being used to their fullest extent.
Task 2. Now read the text again and answer these questions in your own words.
What are the two tools of fiscal policy?
What is someone’s personal allowance?
What will the government do to taxes if the economy is slowing down?
How can the government create more demand in the economy?
When does the multiplier effect stop working?
Task 3. Choose the correct answer A, B or C from the list opposite.
The ______department of the government looks after roads, railways and airports.
The government hopes its _____ will help reduce unemployment.
The parts that something is made of are sometimes called ________.
_________ employment is when everyone who can work has a job.
The money that you have after you’ve paid taxes is called your ______ income.
The part of a person’s salary that is not taxed is called their personal ___________ .
The government plans many new ___________ projects, such as building new hospitals and schools.
Another word for extra goods that are not needed is _________.
When the economy is working at full __________, it is using all its resources for production.
A _____________ is a large, fast road which connects cities.
A _______ is a plan for achieving something.
In a _____ tax system, people who earn more pay more tax than people who earn less.
1. a. transport b. education c. defence
2. a. components b. allowance c. policy
3. a. income b. components c. capacity
4. a. absolute b. complete c. full
5. a. full b. disposable c. spending
6 a. allowance b. surplus c. capacity
7. a. personal b. public c. disposable
8. a. surplus b. shortage c. allowance
9. a. employment b. income c. capacity
10. a. path b. motorway c. railway
11. a. component b. project c. scheme
12. a. surplus b. progressive c. public
Task 4. Make up an investment project.