Chapter 14

Chapter 14, Section 1

 Money: Anything customarily used as a medium of exchange, a unit of accounting and a store of value.  Without money, people would have to barter: exchange of goods and services for other goods and services.  Barter requires a coincidence of wants: the seller must want what the buyer has to offer and the buyer must want what the seller has to offer.

A seller will accept it in exchange for a good or service. Medium of Exchange It allows you to compare the value of goods and services in relation to one another Unit of Accounting It allows you to store purchasing power for later use. Store of Value

Durable: Withstand wear and tear of being passed around Portable: Easy to carry around Divisible: Be easily divided into smaller parts so smaller purchases can be made Stable in value: Its value cannot change rapidly or it will lose its store of value Scarce: This is what gives money its value Accepted: Must be accepted by sellers as a medium of exchange

Commodity Money Like cattle or gems Has value as a good aside from its value as money Representative Money Money backed by an item of value like gold or silver Fiat Money Money that has value because a fiat (government order) has established it as acceptable for payment This describes U.S. currency Legal Tender Money that by law must be accepted for payment of public and private debts

Chapter 14, Section2

Coinage Act (1792) Established the dollar as the currency of the U.S. It was back by gold and silver (representative money) Federal Reserve System (1913) Created to regulate the banking system, the money supply and make loans to member banks Great Depression (1930s) The U.S. went off the gold standard. Currency became fiat money FDIC was started Prior to the Revolutionary War, colonists used barter as well as European currency. The colonies issued the “continental” but they issued so many it became worthless.

 Checking accounts, interest on checking accounts, automatic deposit and payment, storage of valuables (deposit box) and wire transfers  Overdraft checking: checking account that allows a customer to write a check for more money than is in his or her account  ATMs (automated teller machines): unit that allows consumers to do their banking without the help of a teller  EFT (electronic funds transfer): system of transferring funds from one bank account to another without any paper money changing hands

Chapter 14, Section 3

 Currency: paper bills and coins  Checks:  Checking account: account in which deposited funds can be withdrawn at any time by writing a check  Checking accounts are offered by commercial banks and thrift institutions: mutual savings banks, savings and loans and credit unions  Debit card: a way to automatically withdraw money from your checking account.  It is not a loan.  A credit card is not money; it is a loan.  Benefit: you cannot spend money that is not in your account, so you avoid overdraft fees.

 Near moneys: assets such as savings accounts that can be turned into money (currency or a checking account) relatively easily and without the risk of loss of value. Time deposits(CDs) Savings accounts Money market deposit accounts Retail money market mutual fund balances Near Moneys Stocks Bonds Real estate Not Near Moneys

 M1: narrowest definition of the money supply; consists of moneys that can be spent immediately and against which checks can be written  Currency and checking accounts  M2: broader definition of the money supply; includes M1 plus near moneys  M1 plus near moneys