Money and Banking Chapter 11

--moneyless economy that relies on trade Barter economy --moneyless economy that relies on trade 2X2 Time!!! Do we still barter today?? Can you think of an instance where people barter?

Money Medium of Exchange—something accepted by everyone as payment for G & S. Money Measure of Value- common denominator that can be used to express worth --dollars and cents Store of Value- allows purchasing power to be saved until needed

For money to be effective it must be limited in supply 2x2 Time! With Partner: What would happen if there was an unlimited supply of money? On your own: What would happen if there wasn’t enough money for everybody who needed it?

Commodity Money- money that can be used for other purposes besides currency (tea leaves) Fiat Money- money by government decree and not backed by anything other than consumer confidence

Characteristics of Money Portability --easily transferred Durability --should not deteriorate when being held as a store of value

Divisibility --divisible into smaller units Limited Availability --money loses its value when there is too much of it

Take out a dollar bill if you have one.

Your Dollar Bill Answer these questions in your notes: Look at the side with the person’s face on it. What’s the topmost writing on that side of the bill? Where was your bill printed? The seal to the left of Washington mentions a Federal Reserve Bank. Which bank does your bill mention?

National Currency --there were over 10,000 different currencies from states --In 1863 the gov’t issued gold certificates (currency backed by gold) and in 1886 added silver certificates

Advantages of the Gold standards: 1. people felt secure 2. prevented the gov’t from printing too much money Disadvantages of the Gold standards: Gold stock couldn’t keep up w/ growth People could cash their $ in for all of the gov’ts gold 3. Value of gold is NOT fixed