Introduction to Personal Economics: The Purpose of Money

Professor Dave introduces personal economics, focusing on understanding money's role in making better choices. Money serves as a medium of exchange, unit of account, and store of value. Bartering is impractical, highlighting money's importance in transactions. Money helps compare values and retains value over time, though inflation can affect purchasing power. Budgeting is crucial for managing money, with a suggested allocation of 80% for needs, 10% for wants, and 10% for savings. Money is a tool for building wealth and achieving economic freedom.

What are the three primary purposes of money according to economists?

• Store of value, investment tool, wealth generator

• Unit of account, wealth generator, investment tool

• Medium of exchange, investment tool, wealth generator

• Medium of exchange, unit of account, store of value

Why is bartering considered impractical for most transactions?

• It is more expensive than using money.

• It is illegal in most countries.

• It requires finding someone with the exact goods you want and who wants what you have.

• It is only used for large transactions.

How does money function as a unit of account?

• By increasing the purchasing power of consumers.

• By enabling people to barter more effectively.

• By providing a standard measure to compare the value of goods and services.

• By allowing people to save for future purchases.

What is a major risk of holding onto money during periods of rapid inflation?

• Money may lose its purchasing power.

• Money may increase in value.

• Money may become illegal to use.

• Money may be stolen more easily.

What budgeting strategy is commonly suggested by budget counselors?

• 70% for needs, 20% for wants, 10% for savings

• 60% for needs, 20% for wants, 20% for savings

• 80% for needs, 10% for wants, 10% for savings

• 50% for needs, 30% for wants, 20% for savings