1. [ 6.1 ] The Role of Money

2. The Three Uses of Money Money as a Medium of Exchange
Money as a Unit of Account
Money as a Store of Value

3. The Three Uses of Money
Money has three main functions. Analyze Information Why is it important to have a means of exchange that is a stable, consistent unit of account?

4. Characteristics of Money
To be successful money must be:
PORTABLE
DURABLE
DIVISIBLE
LIMITED IN
SUPPLY

5. Portability Easily transferred from one person to another
Examples in early years: dog teeth, feather stick money, wampum, tobacco, and compressed blocks of tea

6. Durability
Needs to be able to last when handled and does not deteriorate when being held as a store of value

7. Divisibility
Money must be easily divisible into smaller units, so that people can use only as much as needed

8. Limited availability
Money loses its value whenever there is too much of it

9. The Six Characteristics of Money
This wampum belt was made from shells and used as money by Northeast Native Americans when they traded with European colonists.

10. The Six Characteristics of Money
One characteristic of money is that it is divisible into smaller amounts. Divisibility of money into small amounts such as coins means that you can pay the exact amount for something that you buy.

11. Sources of Money’s Value
Commodity Money-
Objects that have value in and of themselves
Cattle, Gems, Tobacco

12. Representative Money
Objects that have value solely because the holder can exchange them for something else.
IOU

13. Fiat Money
“Legal Tender”-Has value because a government has declared that it is acceptable means to pay debts.
Dollars, Pesos, Franks, Euros

14. Sources of Money’s Value
Although cattle's inherent value has led it to be used as money throughout history, this cartoon humorously shows the problems with using commodity money.

15. Quiz: The Three Uses of Money
Which of the following is true about bartering?
A. It is usually fast and convenient.
B. It is often used in urban areas the United States.
C. It involves the exchange of currency.
D. It involves the exchange of goods or services.

16. Quiz: The Six Characteristics of Money
The fact that you can pay for a five-dollar item with a ten-dollar bill and get five dollars back in change shows which of the following?
A. that money is durable
B. that money is a store of value
C. that money is uniform
D. that money is divisible

17. Quiz: Sources of Money’s Value
Why does fiat money have value?
A. because it is backed by a government in which people have confidence
B. because it is always more portable and divisible than commodity money
C. because it has all of the characteristics of representative money
D. because it is the only form of currency that meets the six characteristics of money

18. The Gold Standard
Advantages
Disadvantages

19. Advantages People feel more secure about their money
Supposed to prevent the government from printing too much paper currency
Enough gold to back up paper currency in circulation

20. Disadvantages
The gold stock may not grow fast enough to support the growing economy
People may suddenly decide to convert their currency into gold, thereby draining the government’s gold reserves

21. Disadvantages Con’t
The price of gold is likely to change dramatically over time if it is not fixed
There is always the political risk of failure. A government that announces an official price for gold looks ineffective and foolish as it cannot carry out its intentions

22. [ 6.2 ] Changes in American Banking

23. American Banking Before the Civil War
Opposing Views of Banking
The First Bank of the United States
Financial Chaos in America
The Second Bank of the United States
The Free Banking Era

24. American Banking Before the Civil War
Analyze Charts What does the chart suggest about the role of government in banking during the twentieth century?

25. American Banking Before the Civil War
Alexander Hamilton, a Federalist, was a staunch supporter of a strong federal government and, therefore, of a strong central bank.

26. Stability in the Later 1800s
By 1860, an estimated 8,000 different banks were circulating currency. To add to the confusion, the federal government played no role in providing paper currency or regulating reserves of gold or silver. The Civil War, which erupted in 1861, made existing problems worse.

27. Stability in the Later 1800s
Currencies of the Civil War
National Banking Acts
The Gold Standard

28. Stability in the Later 1800s
During the Civil War, the Confederate government issued currency such as this bill. After the Confederacy lost the war, this currency became worthless.

29. Banking in the Early 1900s The Federal Reserve System
Banking and the Great Depression
FDR Reforms

30. Banking in the Early 1900s
The Panic of 1907, illustrated here on a magazine cover at the time, contributed to many people’s belief that the nation needed a central banking system.

31. Two Crises for Banking
As a result of the many bank failures of the Great Depression, banks were closely regulated from 1933 through the 1960s. The government restricted the interest rates banks could pay depositors and the rates that banks could charge consumers for loans. By the 1970s, bankers were eager for relief from federal regulation.

32. Two Crises for Banking The Savings and Loan Crisis
Financial “Meltdown,” Bailout, and “Recovery”

33. Two Crises for Banking
Analyze Graphs During which year did the percentage of subprime mortgages increase the most?

34. Quiz: American Banking Before the Civil War
Which of the following did the Federalists support?
A. an economy based on agriculture
B. state-regulated banks
C. a national bank
D. a decentralized banking system

35. Quiz: Stability in the Later 1800s
The official name of the 1861 currency issued by the Federal Reserve was ___________.
A. demand notes
B. greenbacks
C. continentals
D. gold standards

36. Quiz: Banking in the Early 1900s
Why did Roosevelt want to take the United States off the gold standard?
A. He wanted to increase the value of the dollar.
B. He wanted to decrease the value of gold.
C. He wanted to encourage people to trust their banks.
D. He wanted to give the Fed more control of the money supply.

37. Quiz: Two Crises for Banking
Approximately one third of Obama’s stimulus package was devoted to
A. spending increases.
B. healthcare.
C. tax cuts.
D. war-fighting efforts.