Presentation on theme: "Ch. 10 Notes: Money When you think money, you think coins, cash, or any other slang terms you can think of. Economists think of it for 3 uses: –Anything."— Presentation transcript:
Ch. 10 Notes: Money When you think money, you think coins, cash, or any other slang terms you can think of. Economists think of it for 3 uses: –Anything that serves as a medium of exchange –A unit of account –A store of value
Ch. 10 Notes: Money Money as a Medium of exchange you know. –Paying for something (ex: DVD) with cash, check –If you didnt have this, then you would have to barter. The direct exchange of one set of goods for another.
Chapter 10 Notes: Money Money as a unit of Account you use every day without even thinking about it. –Money provides a means for comparing the values of goods and services. –Ex: You find a jacket for $30 at Dillards, but you think the same jacket is at Macys for only $28. –You can do this b/c the cost of the jacket is expressed in dollars, just like other stores in the US.
Chapter 10 Notes: Money And Money as a Store Value you rely upon each time you get change back. This means that money keeps its value if you decide to hold on to-or store it-it instead of spending it. The one important exception to this is when an economy experiences a period of inflation.
Chapter 10 Notes: Money The Six Characteristics of Money Durability Portability Divisibility Uniformity Limited Supply Acceptability
Chapter 10 Notes: Money What makes money valuable? That is determined by what type of money each one is: –Commodity money (salt, cattle, precious stones) –Representative money ( IOU, Continental, gold or silver certificate) –Fiat money (US money today, order or decree)
Chapter 10 Notes: Banking History Two original views of the national bank: –Federalists( led by Alexander Hamilton) wanted a national bank to manage the federal governments funds and issue one currency –Antifederalists( led by Thomas Jefferson) wanted a decentralized banking system, and the states would regulate banks within their borders
Chapter 10 Notes: Banking History The Free Banking Era: –After the fall of the 2 nd national bank –Problems with this time included: Bank runs Wildcat banks Fraud Many different currencies
Chapter 10 Notes: Banking History After reform acts failed during and after the Civil War, the US moved to the Gold Standard. –The gold standard set a definite value for the dollar…one ounce of gold was worth $20. People could redeem their paper money at any time for gold. –The government could only issue currency if it had gold in the treasury to back the notes.
Chapter 10 Notes: Banking History The Federal Reserve System –Created 12 regional banks that stored some of the cash of the Federal Gov. –Federal Reserve Board: supervised Federal Reserve Bank –The 12 Regional banks could make short term loans to member banks to cover withdraws –Federal Reserve notes created: Our currency we know today.
Chapter 10 Notes: Banking History The Great Depression was caused by bad loans, farmers unable to pay loans back after crop failure, and the stock market crash forced many banks to close b/c of bank runs. Federal Deposit Insurance Corporation (FDIC)- Created to insure customers that even if a bank fails, customers accounts will be covered by the federal government up to $100,000 per account ($250, 000 per account today)
Chapter 10 Notes: Banking History The Savings and Loan Crisis caused by: –Deregulation –High interest rates affected older loans at low interest rates –Bad Loans –Fraud
Chapter 10 Notes: Banking Today Money supply consist of two categories: –M1= assets that have high liquidity »Currency »Checking accounts (demand deposits) »Travelers Checks –M2= assets also called near money. Not as highly liquid as M1. »Savings deposits »Retail money markets funds »Small denomination time deposits
Chapter 10 Notes: Banking Today Functions of a Financial Institution –Storing Money –Saving Money –Loans –Mortgages –Credit Cards