1. Chapter 11 Money and Banking Section 1:
Barter economy
economic system where money is not used.
Relies on trade
Hard to value trade items
Hard to divide trade items

2. Money any substance that serves as a medium of exchange
Measure of value
Store of value
Accepted by society

3. Medium of exchange
something accepted by all parties as payment for goods and services
Gold
Silver
Salt
Salarium: annual pay for Roman soldiers = salary

4. Measure of value
a common denominator that expresses worth that most people can understand.
US: price expressed in dollars and cents.

5. Store of value
property of a medium that allows purchasing power to be saved until needed
Goods and services can be converted into money. Some, more than others
Precious metals/minerals
Vintage items (cars, wines, art….)
Money itself is a store of value

6. Commodity money has an alternative use as an economic good
Compressed tea
Spears
Dog teeth

7. Alternative forms of Currency
Come up with 10 alternative forms of currency.
Bottle Caps
Gum
Salt
Gold
Silver
Gasoline
Water
Food
Coffee
Cloths
Shoes
Glasses
Medicine
Wood
Alcohol

8. Characteristics of Money
Durability
Must be able to last when handled so that it can last.
Roman coins that still exist today
Portability
Easily transferable from one person to another.
Divisibility
Money should be able to be divided into smaller units so that you only spend what you need to.
Limited Availability
If the product is too common then it would have no value.

9. Fiat money has a monetary value by government decree.
Metallic coins/paper bills
It has value because we have faith in our government.
Without this trust in the government the currency has no value.

10. specie
money in the form of coins made from silver or gold.

11. Monetary unit 289 standard unit of currency in a country US, dollar
Japan, yen
Britain, pound
China, yuan
Europe, Euro-dollar
India, rupee
Russia, rouble

12. Section 2: Monetary standard
the mechanism that keeps the money supply…..
Portable
Durable
Divisible
In a limited supply

13. State banks
banks that received their charter to operate from a state government
Issued their own currency
Backed by gold/silver
Subject to
Fraud
Counterfeiting

14. Legal tender fiat currency that must be accepted in payment of debts
Paper issued during the American Civil War
Aka: “greenbacks”

15. United States Notes a new fiat currency issued in 1862
Legal Tender Act
Also called “greenbacks”
No gold or silver backing.

16. National banks
privately owned banks that received their charters from the federal government.
Part of the National Banking System
All banks would be forced to join the NBS after 1865
US government put a 10% tax on private banks not in the system.

17. National bank notes, national currency
paper currency that was backed by US government bonds
Uniform appearance
Confidence backed by “rigorous” government inspections and audits of banks.

18. Gold certificate paper currency backed by gold
Gold deposited in the Federal Treasury
First used in large denominations for banks
Later smaller denominations for public use.

19. Silver certificate 1878 paper currency backed by silver
Political gimmick to help the silver industry
Also put more currency in economy to stimulate consumption

20. Treasury coin notes paper currency issued by the US Treasury
Redeemable in gold or silver
Ended in 1893

21. Gold standard
basic currency was equal to, could be exchanged for, a specific amount of gold.
1900 Gold Standard Act
Could be exchanged at the Treasury for gold at any time.

22. Inconvertible fiat money standard
US system since 1934
A monetary standard under which the fiat money supply cannot be converted into gold or silver by its citizens.

23. Assessments: Checking for Understanding
1 How does money advance the exchange of goods and services?
Money allows people to buy directly what they need instead of waiting for a “mutual coincidence of wants”
Mutual coincidence of wants allows barter to happen.

24. Assessment 3 Describe three functions of money.
It serves as a medium of exchange
Measure of value
A store of value

25. Assessment 4 Name four types of early money. Tea leaves cheese Spears
Various commodity money

26. Assessment
5 Explain how the dollar was adopted as the basic monetary unit.
US states printed their own money
Backed by gold/silver
Worked only for region
national economy was in chaos.
Federal government needed funds for the revolution and issued paper bills.
Idea was temporarily successful, but inflationary in the long run
The idea of a national monetary unit was popular, though.
Specie, not paper.
Name for dollar came from Austria

27. Assessment 6 Identify the four characteristics of money. Portability
Durability
Divisibility
Limited availability

28. Assessments: Checking for Understanding
1. What is the purpose of a monetary standard?
To keep the money supply
Portable
Durable
Divisible
In a limited supply

29. Assessment
3 Explain how privately issued bank notes became part of the money supply.
Before the US Civil War, most of the money was paper currency used by privately owned state-chartered banks.

30. Assessment
4 List the five major currencies in use after the Civil War.
Greenbacks
National currency
Gold certificates
Silver certificates
Treasury coin notes

31. Assessment
5 Identify the advantages and disadvantages of a gold standard.
Advantages:
Some feel secure if they know money can be converted into gold
Can prevent the government from printing too much paper currency
Disadvantages:
Gold stock may not grow fast enough to meet the needs of the economy
Drain on the government’s gold reserves
The price of gold fluctuates
Political risk of failure.

32. Assessment
6 Describe the inconvertible fiat money standard the United States uses.
It is a system under which the fiat money supply cannot be converted into gold or silver by its citizens.

33. Image, p. 288 How does money function as a medium of exchange?
It is generally accepted as payment for goods and services.

34. Image, p. 289
What characteristics must money have to be a successful medium of exchange?
Portability
Durability
Divisibility
Limited availability

35. Image, p. 293
What part of the Constitution gives Congress the right to coin money?
Article I, section 8

36. image, p. 294 In what order re the quarters being released?
In the order in which the states were admitted to the Union.

37. p. 297
1 Why does the writer believe countries will not accept a common currency?
The depictions on currency reinforce national icons and symbols
Countries reluctant to surrender control of the own banking systems and macroeconomic policy.
2 Is the writer’s argument valid or not?
For ten years, the Euro has been successful.
At one point, it was worth over USD $1.60.
Presently, due to member nations’ economic failures (Greece, Ireland, etc.), the Euro has dropped in value of USD $1.30

38. Quick Write
Why do you think that Great Britain did not switch over to the Euro in 2002?