UNDERSTANDING ECONOMICS MONEY BANKING AND FINANCE JEANNE NAGLE Britannica Educational Publishing IN ASSOCIATION WITH ROSEN EDUCATIONAL SERVICES
There have been economies since the dawn of civilization civilization but economics is a recently developed field of study originating as a social science during the eighteenth century Economics is the study of how a society’s resources are shared in order to create wealth Defined as the total sum of all possessions including financial assets minus total liabilities liabilities wealth can be measured in terms of money Every purchase in a store is an exchange Someone has a product that he or she trades for someone else’s money In preindustrial societies people exchanged goods and services services directly without money in a process called barter A person might exchange something he or she made say shoes for a shirt that someone else made Or they might both exchange their shoes and shirts for 10 pounds 4 5 km of wheat grown by a farmer and then split the wheat This process of exchange was very simple It resembled how some people trade baseball cards or comic books today In a modern society however with millions of people people and hundreds of thousands of products and services the barter system becomes impossible The complications would be endless and overwhelming To get rid of barter and to simplify exchange money was invented With the invention of money came the creation of banks which are institutions that deal in money and its substitutes Banks accept deposits make loans and derive a profit from the difference in the interest paid to lenders 4 INTRODUCTION
The invention of money changed the old system of bartering into the cash-for-goods exchange that people commonly use today depositors and charged to borrowers respectively From these deposits the bank makes loans to individuals businesses businesses government agencies and other banks Banks also profit from fees charged for services such as checking accounts credit cards and mortgages Many banks now offer a number of other investment products and financial services including retirement accounts annuities mutual funds and investment management Governments print currency and declare it to be money It is mandated to be the official medium of exchange within 5
