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8. What is Money? (Ch7)

Principles of Macroeconomics (with Xtra!)

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T he value of money depends on the confidence of those who use it. The Canadian dollar has value because it is widely accepted by Canadians as one means by which they exchange goods and services. Historically, the value of money has been vested in certain objects and these have taken many forms: cattle (source of the word “capital”), iron, gold, silver, diamonds, shells, and numerous other things. Nowadays, vast amounts of money are not even represented by objects—they are merely computer entries in a data bank. Whether a tangible object or a computer entry, money is based on a social agreement to recognize value. This allows the computer entry or the object to be accepted in exchange for goods and services or for the settling of debts. Today, the average Canadian uses a mixture of traditional as well as newer forms of money— such as coins and bank notes, cheques, and debit cards—and several means of storing money such as bank accounts, savings bonds, and certificates of investment. These various
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