Heads Up Money

Contents

HOW TO USE THIS eBOOK

A WORLD OF MONEY

WHAT DO ECONOMISTS DO?

SHOW ME THE MONEY

What is MONEY?

On the MARKET

Keeping up with CURRENCY

Fair EXCHANGE

Where did the MONEY go?

In Focus: CRYPTOCURRENCIES

Making sense of ECONOMICS

Money and economics IN PRACTICE

WHAT’S IT WORTH?

The ECONOMIC Problem

Who gets WHAT?

In Focus: ETHICAL TRADE

GOODS and SERVICES

SUPPLY and DEMAND

Why are some things more VALUABLE?

A hive of INDUSTRY

In Focus: PUBLIC COMPANIES

Healthy COMPETITION?

Who’s in CHARGE?

How BUSINESSES operate

Running an EFFICIENT business

In Focus: COOPERATIVE MOVEMENTS

Going to WORK

BIG spenders

Resources and businesses IN PRACTICE

DOES MONEY MAKE THE WORLD GO ROUND?

Let well enough ALONE

Free TRADE

It’s a SMALL World

Economic UPS and DOWNS

In Focus: ECONOMIC BUBBLES

When markets don’t DO THEIR JOB

A taxing PROBLEM

What does the FUTURE hold?

A RISKY business

An informed GAMBLE

In Focus: Hyperinflation

Is greed GOOD?

Making the RIGHT decision

In Focus: FINANCIAL CRISIS OF 2007-8

Costing the EARTH

Markets and trade IN PRACTICE

CAN MONEY BUY HAPPINESS?

Measuring a country’s WEALTH

Who’s providing the MONEY?

Making MONEY out of thin air

Why are some countries POOR?

In Focus: INTERNATIONAL FINANCIAL INSTITUTIONS

Who benefits from GLOBALIZATION?

The POVERTY problem

Helping the DEVELOPING WORLD

In Focus: PROVIDING ENERGY

PAYBACK time!

The WAGE gap

Living standards and inequality IN PRACTICE

WHAT’S IN YOUR POCKET?

Finding a BALANCE

Earning a LIVING

A SAFE place for my money

Do you REALLY need that?

Looking after the PENNIES

Buy now, pay LATER?

In Focus: THE RATE FOR THE JOB

How would you like to PAY?

Travel MONEY

For a RAINY day…

Making PLANS

Personal finances IN PRACTICE

Directory of economists

Glossary

Acknowledgments

Imprint

How to use this eBook

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It has been said that money makes the world go round and it seems that we really can’t live without it. We all need money, and yet few of us really understand what money is and why it matters so much. Why does paper currency, a coin, or a piece of plastic enable us to buy the things we want? How does economics affect businesses and jobs? How does economics affect our environment, our society, and the world? and what choices do we need to consider to have the life we want and to secure our future?

Without money, we would have no choice but to barter and exchange things every day. How time-consuming and inefficient would this be? The invention of money as a means of exchange makes the economy function quickly and efficiently and enables us to conduct business on a global scale. Sterling was first introduced as currency in England in the reign of King Offa of Mercia (757—796 AD), with 240 silver pennies equaling one pound weight of silver, hence the pound sterling name. The United States adopted the dollar as the unit of currency in 1785, with a value of 270 grains of gold or 416 grains of silver. Once paper currencies became universally acceptable, gold and silver backing for a currency was ended and paper (or fiat) money became the norm.

Our economy today relies on fiat money, supplemented with additional forms of payment, such as credit cards, debit cards, prepaid cards, and, contactless payments via mobile phones.

Money also acts as a measure of value, a store of value (in the form of savings), and it can be used to transfer value between individuals. Money now no longer just facilitates trade—it has become a major world trading item in its own right for speculative reasons. The exchange of money through the world’s money markets now exceeds $5 trillion every day. Less than 1% of this is associated with real trade; the other 99% is trade in money itself! Economics affects our lives in many ways, underpinning the industries we work for and the way our government operates, filtering through to the money in our wallets and how we spend it.

Economics examines the different ways that governments, businesses, and individuals manage resources and provide goods and services. Some people who have studied economics work as economists, for example, as economic advisers to governments or businesses, or they work in a university economics department. Many more use their knowledge of economics more indirectly in other careers, in both the public and private sectors.

ACADEMIC ECONOMISTS

Teaching economics

Economics is taught in most schools and universities, and is a popular choice of subject for students looking forward to a career in business, finance, or government.

Research economist

Many economics students continue their studies at university, and some of these go on to become academic economists, teaching and researching economic theory.

Macroeconomics

There are two main fields of economic study: macroeconomics and microeconomics. In macroeconomics the economies of countries and their governments are studied.

… and microeconomics

Microeconomics looks at specific aspects of the economy and examines the economic behavior of individuals and businesses buying and selling goods and services.

Applied economics

Students of economics often study subjects connected to economic ideas, such as business studies, politics, law, and sociology, but also subjects such as philosophy.

PUBLIC SECTOR ECONOMISTS

Political economist

There are many career options in politics for economics students. Many politicians have studied economics, and governments employ professional economists to advise on policy.

Economists in government

Many government departments employ people qualified in economics—tax and finance departments, for example. All branches of the civil service require economists.

Development economics

Economists may work in major international organizations, such as the UN and World Bank. Those specializing in development economics can also work for aid agencies and charities.

PRIVATE SECTOR ECONOMISTS

Banking

Economics graduates work in banking. Either in consumer banks dealing with individuals and small businesses or in investment banks providing finance for larger corporations.

Traders and analysts

Studying economics is useful for traders in the financial markets, such as the stock exchange or commodities markets. Economists also work as analysts and advisers to trading firms.

Financial advisers and accountants

Some economists work as accountants or financial advisers, guiding businesses, insurance firms, or individuals, on issues with savings, tax, and investments.

In the news

TV, radio, and newspapers often employ a number of journalists with qualifications in economics to report on current affairs and offer an analysis of the news.

Money plays an important part in all our lives. We earn money to buy the things we need, and to save for the future. We exchange our money for goods and services that are produced by all kinds of businesses. Economics is the subject that studies not just money, but the way that these goods and services are produced and managed.

What is MONEY?

On the MARKET

Keeping up with CURRENCY

Fair EXCHANGE

Where did the MONEY go?

Making SENSE of economics

Money plays an important part in all our lives. We work hard to earn it, and some people take huge risks to get more of it. Sometimes, we judge how successful people are by how much money they have, and there are people who suffer because they don’t have enough of it.

dk What’s the use?

Money has three main uses: storing value or saving, as a common unit for measuring what something is worth, and as a medium of exchange for buying goods or services.

Money, money, money

What exactly is money? When we think about money, most of us think of the cash—the bills and coins—we have in our pocket or wallet. But there’s also money that is less obvious. You may, for example, get a check through the mail as a present from a relative, or a gift card to spend at a particular store. It’s likely that you’ll have a bank account where you keep most of your money, but never see it except as a number on your monthly statement. There are also credit and debit cards and ways of paying for things online, all of which require money.

Let’s swap!

Money can take various forms, but the forms all have certain things in common. The first and most obvious is that we can buy things with it. It is what economists call a medium of exchange. If someone is offering something that we want or need, we can offer them something we have in exchange. For example, a friend may have tickets to a baseball game that she doesn’t want, and I offer to swap them for an extra set of headphones I have. Alternatively, I could sell the headphones to someone else, and use the money to buy the tickets from her. The money I am paid for the headphones is more useful to me, because I can use it to buy all kinds of things, and from many different people who may not want headphones.

Putting a price on it

The question remains about how much the tickets, or the headphones, are worth. It’s difficult to see if an exchange of two very different things is fair, unless we have a means of measuring the worth of the two items. This is another function of money: it is a way of putting a price on things, it works as what is known as a unit of account. Money is a system of units, in much the same way that currencies like dollars, pounds, euros, or yen are. We can use these units to put a price on things and this allows us to compare their worth.

Lasting value

There is a third important function of money. It is a way of saving for the future, or as economists call it a store of value. When we go to work, we get paid for what we do. If there were no money, we might be paid with things such as food or other necessities. However, if we receive a paycheck of money—or money is put into a bank account—it can be used to buy our food, clothes, and pay our bills; it can be used for many different things. If there is money left over after we have bought the things we need, it can be saved to be used later. There are other ways of storing value, for example, in artworks, property, or land, but money is far more flexible and easier to exchange. To be useful in this way, money must hold its value over time, so the money in our bank accounts can be used in exchange when it is needed.

dk Numismatics is the study or collection of money, such as in the form of coins and banknotes.

See also: CRYPTOCURRENCIES | Making MONEY out of thin air

Most people think of a market as a place where traders set up stalls to sell their fruit, vegetables, and other everyday items, or perhaps the modern supermarket or shopping mall. But when economists talk of the market it has a wider meaning, to include the exchange of all kinds of goods and services.

Getting what we need

In economics, the market is not a place, but the way in which we can get the things we need, such as our food, clothes, and appliances. It is also the way that producers of these things can offer them to us for sale. A producer of bicycles, for example, could put them up for sale on a market stall, but is more likely to sell them in stores and over the internet—these are different ways of putting them on the market.

Markets began when people came to a particular place, the marketplace, to buy and sell things. At the stalls, sellers offered goods—things they had produced, such as food—or services—things that they could do, such as cutting hair. In modern towns and cities, traditional markets are less common and have been replaced by supermarkets and shopping centers, selling everything from groceries to electronics to clothes. Services can also be found in downtown areas and in shopping centers. Hairdressers, lawyers, restaurants, and opticians all offer their expertise from their stores and offices.

dk Goods and services

Providers of all