Chapter 10

Anything that serves as a medium of exchange, a unit of account, and a store of value

1. Money as a Medium of Exchange

2. Money as a Unit of Account

3. Money as a Store of Value

Is anything that is used to determine value during the exchange of goods and services.

Without money, people must barter; this is exchanging goods and services for other goods and services.

A means for comparing the values of goods and services.

VALUE GERMAN INFLATION

Something that keeps its value if it is stored rather than used. Does not work when

economy experiences period of rapid inflation.

Coins and paper bills used as money

1. Durability

2. Portability

3. Divisibility

4. Uniformity

5. Limited Supply

6. Acceptability

Must be able to withstand physical wear and tear.

People need to take money with them.

Easily divided into smaller portions.

Spanish doubloons Different denominations

Must be the same in what they will buy.

Money must be limited in supply.

Everyone must be able to exchange the objects that serve as money.

1. Commodity Money2. Representative Money3. Fiat Money

Objects that have value in themselves and that are also used as money

Objects that have value because the holder can exchange them for something else of value

Money that has value because the government has ordered that it is an acceptable means to pay debts

Chapter 10 section 2

Banking debate started as part of larger debate about role of government in new nation.

FEDERALIST Anti-FEDERALIST Strong central

government. Led by Alexander

Hamilton. National Bank

Power in the hands of the states.

Led by Thomas Jefferson.

Decentralized banking system

Federalists successful, Bank of the United States set up by Congress in 1791.

20 year charter Helped bring order and stability to

American banking.

Bank only functioned until 1811. Jefferson argued that it was not a power

given to Congress by the Constitution.

1804

Banks issuing their own notes. Inflation and mistrust. http://www.swifteconomics.com/2010/02/

28/cities-printing-their-own-money/

Chartered by Congress in 1816 to end chaos

Another 20 year charter Renewal vetoed by President Jackson in

1832

1. Bank runs and panics: widespread panic in which great numbers of people try to redeem their paper money.

2. Wildcat banks: banks with high rate of failure.

3. Fraud: banks collected gold / silver, issued notes, and fled.

4. Many different currencies.

8,000 banks issuing currency, no federal government currency.

1861 US Treasury issues its first paper currency. “greenbacks”

South issues currency backed by cotton

The gold standard, a monetary system in which paper money and coins are equal to the value of a certain amount of gold, was adopted in the 1870s.

This is the nation’s central banking system.

It serves as the nations central bank, it can lend to other banks in times of need.

It is made up of member banks, that belong to the Federal Reserve System.

1933 Congress passed act to create Federal Deposit Insurance Corporation (FDIC), this is the government agency that insures customer deposits if a bank fails.

Chapter 10 section 3

The Money Supply: all the money available in the U.S. economy

M1 represents money that people can gain access to easily and immediately to pay for goods and services, liquidity. Currency Demand Deposits Other checkable deposits Traveler’s checks

Consists of all of M1 plus many other assets. M1 Savings deposits Small denomination time deposits Retail money market funds

Storing Money Saving Money Loans Mortgages Credit Cards Simple and Compound Interest

Loans Based upon fractional reserve system, banks

only have to hold a certain % of what we deposit.

Mortgages A loan to buy real estate, usually in 15, 25, or 30

year increments. Simple and Compound Interest

Interest is the price paid for the use of borrowed money. Principal is the amount of money borrowed. Simple paid on principal only, compound on principal and interest.

Commercial banks

Savings and Loan Associations

Savings Banks

Credit Unions

Finance Companies

ATM Debit Card Home Banking Automatic Clearing House: automatic bill

paying Stored Value Cards: phone cards, id

cards, gift cards

Item 1 = $10-25 Item 2 = $25-50 Item 3 = $50-100