2 MoneyAnything that serves as a medium of exchange, a unit of account, and a store of value
3 Three Uses of Money Money as a Medium of Exchange Money as a Unit of AccountMoney as a Store of Value
4 Money as a Medium of Exchange 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 Money as a Unit of Account A means for comparing the values of goods and services.
6 Money as a Store of Value German InflationSomething 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 CurrencyCoins and paper bills used as money
8 The Six Characteristics of Money DurabilityPortabilityDivisibilityUniformityLimited SupplyAcceptability
9 DurabilityMust be able to withstand physical wear and tear.
10 PortabilityPeople need to take money with them.
11 Different denominations DivisibilityEasily divided into smaller portions.Spanish doubloonsDifferent denominations
12 UniformityMust be the same in what they will buy.
14 AcceptabilityEveryone must be able to exchange the objects that serve as money.
15 Sources of Money’s Value Commodity MoneyRepresentative MoneyFiat Money
16 Commodity MoneyObjects that have value in themselves and that are also used as money
17 Representative MoneyObjects that have value because the holder can exchange them for something else of value
18 Fiat MoneyMoney that has value because the government has ordered that it is an acceptable means to pay debts
19 The History of American Banking Chapter 10 section 2
20 American Banking Before the Civil War Banking debate started as part of larger debate about role of government in new nation.
21 Two views of Banking Federalist Anti-FEDERALIST Strong central government.Led by Alexander Hamilton.National BankPower in the hands of the states.Led by Thomas Jefferson.Decentralized banking system
22 The First Bank of the United States Federalists successful, Bank of the United States set up by Congress in 1791.20 year charterHelped bring order and stability to American banking.
23 The First Bank of the United States Bank only functioned until 1811.Jefferson argued that it was not a power given to Congress by the Constitution.1804
24 Chaos in American Banking Banks issuing their own notes.Inflation and mistrust.
25 Second Bank of the United States Chartered by Congress in 1816 to end chaosAnother 20 year charterRenewal vetoed by President Jackson in 1832
26 Free Banking EraBank runs and panics: widespread panic in which great numbers of people try to redeem their paper money.Wildcat banks: banks with high rate of failure.Fraud: banks collected gold / silver, issued notes, and fled.Many different currencies.
27 The later 1800s8,000 banks issuing currency, no federal government currency.
28 Currency in the North and South 1861 US Treasury issues its first paper currency. “greenbacks”South issues currency backed by cotton
29 The Gold StandardThe 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 The Federal Reserve System 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 Banking Reforms1933 Congress passed act to create Federal Deposit Insurance Corporation (FDIC), this is the government agency that insures customer deposits if a bank fails.
33 Measuring the Money Supply The Money Supply: all the money available in the U.S. economy
34 M1M1 represents money that people can gain access to easily and immediately to pay for goods and services, liquidity.CurrencyDemand DepositsOther checkable depositsTraveler’s checks
35 M2 Consists of all of M1 plus many other assets. M1 Savings deposits Small denomination time depositsRetail money market funds
36 Functions of Financial Institutions Storing MoneySaving MoneyLoansMortgagesCredit CardsSimple and Compound Interest
37 Functions of Financial Institutions LoansBased upon fractional reserve system, banks only have to hold a certain % of what we deposit.MortgagesA loan to buy real estate, usually in 15, 25, or 30 year increments.Simple and Compound InterestInterest 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 Types of Financial Institutions Commercial banksSavings and Loan AssociationsSavings BanksCredit UnionsFinance Companies
39 Electronic Banking ATM Debit Card Home Banking Automatic Clearing House: automatic bill payingStored Value Cards: phone cards, id cards, gift cards
40 Many Forms of MoneyItem 1 = $10-25Item 2 = $25-50Item 3 = $50-100