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Money, any medium of exchange that is widely accepted in payment for goods and services and in settlement of debts. Money also serves as a standard of value for measuring the relative worth of different goods and services. The number of units of money required to buy a commodity is the price of the commodity. The monetary unit chosen as a measure of value need not, however, be used widely, or even at all, as a medium of exchange. During the colonial period in America, for example, Spanish currency was an important medium of exchange, while the British pound served as the standard of value.
Money of the World Most nations have their own system of money and print their own currency. Made of paper, these pieces of currency have very little intrinsic value. As fiat money, however, the paper bills represent a specific monetary value decreed by the government and accepted by the people. The bills pictured here are examples of fiat money from all over the world.
II MONEY AND THE ECONOMY
Circular Flow of the Economy This illustration presents a simplified version of how money circulates in the U.S. economy. Although it does not take into account several major factors, such as the role of government in the economy, the diagram shows the basic money transactions that make the economy work.
The functions of money as a medium of exchange and a measure of value greatly facilitate the exchange of goods and services and the specialization of production. Without the use of money, trade would be reduced to barter, or the direct exchange of one commodity for another; this was the means used in primitive societies, and barter is still practiced in some parts of the world. In a barter economy, a ...