The Monetary Sector
Learning Unit 2 — Combined Study Guide
Chapter 14: Economics for South African Students (Mohr et al.)
PMAC5112 Economics 1B — combining slide decks from both lecturers
,Learning Outcomes
This learning unit covers four themes, examinable from Chapter 14 of the prescribed textbook:
Theme Learning Outcomes
Theme 1: What is money? Define money; describe the functions of money; discuss
different forms of money.
Theme 2: Measures of the Define the M1, M2 and M3 money aggregates; discuss the
quantity of money functions of the SARB.
Theme 3: Supply and demand Discuss the factors influencing the supply of money (how money
for money is created) and the demand for money; explain causes of
changes in money market equilibrium.
Theme 4: Monetary Policy Discuss the instruments of monetary policy.
1. What Is Money?
Definition
Money is anything that is generally accepted as payment for goods and services, or as a settlement of debt. It is
the foundation of modern economic transactions, enabling smooth and efficient exchanges throughout society.
Money takes many physical forms — coins, banknotes, and even gold.
Before money: the barter system
Before money existed, people used the barter system — a system where one good is traded directly for another,
with no money involved.
, The barter system: goods exchanged directly for other goods.
The barter system requires a double coincidence of wants: if you want something I have, I also need to want
something you have in order for a swap to happen. In a monetary economy, money acts as a lubricant that
removes the need for this double coincidence of wants, making exchange far more convenient.
Evolution of money
Money has evolved over time from barter to today's electronic forms, becoming easier, safer and more efficient
to use at each stage:
The evolution of money: barter → commodity money → metallic money → paper money → electronic money.
Stage Description Example
1. Barter Goods and services exchanged directly Trading fish for grain
2. Commodity Physical goods with value used as a medium of Cattle, grain, shells, salt
money exchange
3. Metallic Metals such as gold, silver and copper used as Gold coins, silver coins
Learning Unit 2 — Combined Study Guide
Chapter 14: Economics for South African Students (Mohr et al.)
PMAC5112 Economics 1B — combining slide decks from both lecturers
,Learning Outcomes
This learning unit covers four themes, examinable from Chapter 14 of the prescribed textbook:
Theme Learning Outcomes
Theme 1: What is money? Define money; describe the functions of money; discuss
different forms of money.
Theme 2: Measures of the Define the M1, M2 and M3 money aggregates; discuss the
quantity of money functions of the SARB.
Theme 3: Supply and demand Discuss the factors influencing the supply of money (how money
for money is created) and the demand for money; explain causes of
changes in money market equilibrium.
Theme 4: Monetary Policy Discuss the instruments of monetary policy.
1. What Is Money?
Definition
Money is anything that is generally accepted as payment for goods and services, or as a settlement of debt. It is
the foundation of modern economic transactions, enabling smooth and efficient exchanges throughout society.
Money takes many physical forms — coins, banknotes, and even gold.
Before money: the barter system
Before money existed, people used the barter system — a system where one good is traded directly for another,
with no money involved.
, The barter system: goods exchanged directly for other goods.
The barter system requires a double coincidence of wants: if you want something I have, I also need to want
something you have in order for a swap to happen. In a monetary economy, money acts as a lubricant that
removes the need for this double coincidence of wants, making exchange far more convenient.
Evolution of money
Money has evolved over time from barter to today's electronic forms, becoming easier, safer and more efficient
to use at each stage:
The evolution of money: barter → commodity money → metallic money → paper money → electronic money.
Stage Description Example
1. Barter Goods and services exchanged directly Trading fish for grain
2. Commodity Physical goods with value used as a medium of Cattle, grain, shells, salt
money exchange
3. Metallic Metals such as gold, silver and copper used as Gold coins, silver coins
