WHY MONEY Economies took shape when people started trading things they had for things they wanted. Imagine a group of our ancestors who possessed a surplus store of animal skins but not enough nuts to last them through the winter. They could trade with another group who had plenty of nuts but no skins. While this process, known as bartering, worked well enough, it had some real limitations. What if a group couldn’t find animal skins when the chill winds of winter began blowing? And how many nuts equaled a skin anyway? Timing and worth—these were two critical problems, and to solve them money was invented. Money, or currency, is anything used as a means of exchange. Instead of paying for skins with nuts, people began paying with money. And when they sold their nuts, they were paid with money. Money meant that buying and selling didn’t have to happen at the same time. With money, people could buy and sell when they wanted or needed to, not just when the opportunity presented itself. As soon as money made its debut, so did the concept of value. Everything bought and sold had a value or price affixed to it. THE BUSINESS CYCLE History is an important teacher, and history teaches us that there have always been, and there will always be, booms and busts in the economy. Essentially, whenever you invest, you’re investing in business. And business goes through a cycle. Inflation (expansion) and recession (contraction) are the recurring phases of the cycle, measured by certain economic indicators such as the gross domestic product and the unemployment rate. If you know where the country is in the business cycle, whether it’s expanding or contracting, you’ll be better able to determine how the businesses you’ve invested in are performing.
Posted on: Tue, 10 Sep 2013 09:22:14 +0000
Trending Topics
Recently Viewed Topics
© 2015