Jacob Economics - Week 6

In episode 11 we learned about money. (Crazy I know, learning about money in an economics course.) Money is used for 3 main purposes: being a medium of exchange, a store of value, and a unit of account. Today, cash and coins are often used as money since they're easy to carry around, physically durable, and hard to counterfeit. There are two types of money, virtual and printed. Bitcoin is a virtual currency that is not issued or regulated by a specific country. No bank is involved, so people can buy things more anonymously. This appeals to people who don't trust central banks and also people who want to buy illegal stuff online. The other type of currency is printed currency. Printed currency could be checks, or paper money. Paper money and checks used to be backed by gold, but now people have faith that the money is as much as it is. Lenders are sometimes corporations with a bunch of cash, but they also could be ordinary households. Borrowers can be other households who want to borrow money to buy stuff like a car or a house or can be businesses that have a great idea for a new product but need money to make the product. Governments sometimes need to borrow money because they're spending more than they're bringing in. The financial system is a network of institutions, markets, and contracts that bring lenders and borrowers together. There are three ways these exchanges can take place. Firstly, a lender could deposit in a bank, then the bank loans the money. As the borrowers pay back, the original lender gets their money back. Secondly, Governments or large corporations will sell bonds to lenders. The lender could sell the bond to another party. Lastly, Companies sell stock, and lenders buy stock in the stock market. Stocks are known as equity. If a company enjoys high profits, shareholders get more money. Financial markets, with instruments like stocks or bonds, allow borrowers to crowdsource the money they need to borrow. They raise their capital from lots of investors and spread the risk around.