CH. 10: MONEY WHAT IS MONEY? Anything that can be used as a “medium of exchange,” “unit of account” and “store of value?”

Medium of Exchange YOU CAN USE IT BUY GOODS/SERVICES

STORE OF VALUE IT HOLDS ITS VALUE Ex: one dollar will always equal one dollar (what it can buy may change due to inflation)

UNIT OF ACCOUNT CONSUMERS KNOW THE VALUE OF SOMETHING WHEN YOU ASSIGN A MONEY AMOUNT TO IT $29 MP3 Player $129 MP3 Player

MONEY HAVE THESE 6 CHARACTERISTICS: DURABLE: last a long time PORTABLE: easy to carry DIVISIBLE: easily broken down into smaller units UNIFORM: easily counted and measured LIMITED: (self explanatory) ACCEPTABLE: everyone in the economy uses it

TYPES OF MONEY COMMODITY: its valuable in and of itself REPRESENTATIVE: it stands for something of value FIAT: the government says its valuable

Banking in America

Two views on banking : Federalists believed in a strong central government Alexander Hamilton believed in a central bank Anti-federalists against strong central government Thomas Jefferson wanted individual states to monitor banking

The free banking era Bank runs and panic – great numbers of people all tried to take money out at the same time. Wild cat banks – banks that were chartered under state law, suffered from high rate of failure

During the Civil War: The North used fiat $$ called “greenbacks” The South used $$ backed by cotton

THE FEDERAL RESERVE REGULATES OUR BANKING SYSTEM (CH. 16)

BANKS HELP TO: MEASURE THE MONEY SUPPLY M1M2 Easy Access Money:  Cash  Checks  Debit Card Slower Access Money:  Savings Accounts  Mutual Funds  CDs

BANKS ALSO: o KEEP YOUR MONEY SAFE o ALLOW YOU TO SAVE MONEY o LOAN MONEY FOR HOMES, CARS, ETC. o CREDIT CARDS AND MORE!

5 TYPES OF BANKS: Commercial Savings and Loan Savings Credit Unions Finance Companies

Types of bank accounts – 1.Savings 2.Checking 3.Money Market 4.Certificate of Deposit

HOW DO BANKS MAKE MONEY? FRACTIONAL RESERVE SYSTEM : The Federal Reserve requires that banks keep a portion of all deposits on hand

PRINCIPAL: What you borrow INTEREST: What you pay the bank in exchange for borrowing DEFAULT: If you do not pay it back

BANKS ARE NOW ELECTRONIC!!