ch. 10 notes: money when you think money, you think coins, cash, or any other slang terms you can...
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 didn’t 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 Dillard’s, but you think the same jacket is at Macy’s 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
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 government’s 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 2nd 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)» Traveler’s 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
Chapter 10 Notes: Banking Today
• Types of Financial Institutions
– Commercial banks (Wells Fargo, Chase, etc.)
– Savings and Loan Associations
– Savings banks
– Credit Unions (for particular groups)
– Finance Companies (cars, appliances, RVs)
Chapter 10 Notes: Banking Today
• Electronic Banking
– ATM machines
– Debit Cards
– Home Banking
– Automatic Clearing Houses
– Stored value cards