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Chapter 10.  Anything that serves as a medium of exchange, a unit of account, and a store of value.

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Presentation on theme: "Chapter 10.  Anything that serves as a medium of exchange, a unit of account, and a store of value."— Presentation transcript:

1 Chapter 10

2  Anything that serves as a medium of exchange, a unit of account, and a store of value

3 1. Money as a Medium of Exchange 2. Money as a Unit of Account 3. Money as a Store of Value

4  Is anything that is used to determine value during the exchange of goods and services.  Without money, people must barter; this is exchanging goods and services for other goods and services.

5  A means for comparing the values of goods and services.

6 VALUEGERMAN INFLATION  Something that keeps its value if it is stored rather than used.  Does not work when economy experiences period of rapid inflation.

7  Coins and paper bills used as money

8 1. Durability 2. Portability 3. Divisibility 4. Uniformity 5. Limited Supply 6. Acceptability

9  Must be able to withstand physical wear and tear.

10  People need to take money with them.

11  Easily divided into smaller portions. Spanish doubloonsDifferent denominations

12  Must be the same in what they will buy.

13  Money must be limited in supply.

14  Everyone must be able to exchange the objects that serve as money.

15 1. Commodity Money 2. Representative Money 3. Fiat Money

16  Objects that have value in themselves and that are also used as money

17  Objects that have value because the holder can exchange them for something else of value

18  Money that has value because the government has ordered that it is an acceptable means to pay debts

19 Chapter 10 section 2

20  Banking debate started as part of larger debate about role of government in new nation.

21 FEDERALIST Anti-FEDERALIST  Strong central government.  Led by Alexander Hamilton.  National Bank  Power in the hands of the states.  Led by Thomas Jefferson.  Decentralized banking system

22  Federalists successful, Bank of the United States set up by Congress in  20 year charter  Helped bring order and stability to American banking.

23  Bank only functioned until  Jefferson argued that it was not a power given to Congress by the Constitution. 1804

24  Banks issuing their own notes.  Inflation and mistrust.  /cities-printing-their-own-money/ /cities-printing-their-own-money/

25  Chartered by Congress in 1816 to end chaos  Another 20 year charter  Renewal vetoed by President Jackson in 1832

26 1. Bank runs and panics: widespread panic in which great numbers of people try to redeem their paper money. 2. Wildcat banks: banks with high rate of failure. 3. Fraud: banks collected gold / silver, issued notes, and fled. 4. Many different currencies.

27  8,000 banks issuing currency, no federal government currency.

28  1861 US Treasury issues its first paper currency. “greenbacks”  South issues currency backed by cotton

29  The gold standard, a monetary system in which paper money and coins are equal to the value of a certain amount of gold, was adopted in the 1870s.

30  This is the nation’s central banking system.  It serves as the nations central bank, it can lend to other banks in times of need.  It is made up of member banks, that belong to the Federal Reserve System.

31  1933 Congress passed act to create Federal Deposit Insurance Corporation (FDIC), this is the government agency that insures customer deposits if a bank fails.

32 Chapter 10 section 3

33  The Money Supply: all the money available in the U.S. economy

34  M1 represents money that people can gain access to easily and immediately to pay for goods and services, liquidity.  Currency  Demand Deposits  Other checkable deposits  Traveler’s checks

35  Consists of all of M1 plus many other assets.  M1  Savings deposits  Small denomination time deposits  Retail money market funds

36  Storing Money  Saving Money  Loans  Mortgages  Credit Cards  Simple and Compound Interest

37  Loans  Based upon fractional reserve system, banks only have to hold a certain % of what we deposit.  Mortgages  A loan to buy real estate, usually in 15, 25, or 30 year increments.  Simple and Compound Interest  Interest is the price paid for the use of borrowed money. Principal is the amount of money borrowed. Simple paid on principal only, compound on principal and interest.

38  Commercial banks  Savings and Loan Associations  Savings Banks  Credit Unions  Finance Companies

39  ATM  Debit Card  Home Banking  Automatic Clearing House: automatic bill paying  Stored Value Cards: phone cards, id cards, gift cards

40  Item 1 = $10-25  Item 2 = $25-50  Item 3 = $50-100


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