DUE YESTERDAY 1)Stock Paper Due 2)Federal Regulatory Agency Assignment 3)Regulating Portland’s Food Carts Article

Lettuce, cabbage, kale, bread, moolah, scratch, bacon, cheddar, boodle, dibs, dough, lolly, motsa, poppy, scheckles, spondulicks, wonga, yennaps, beans, potatoes, boffo, bits, pittance, pelf, jack, simoleons, king’s ransom, loonies, frogskins, greenbacks, dead presidents, scrill

Chapter 13 Money and the Banking System

BEADS SHELLS FLOUR STONES In groups, discuss why each of these would be difficult to use as money in daily economic transactions

Functions of Money Money vs. Barter Barter – the exchange of goods and services without money Money – ANYTHING people accept in exchange for goods and services Three Basic Functions of Money 1.Medium of Exchange 2.Standard of Value 3.Store of Value

Functions of Money Medium of Exchange Definition: Any item that sellers accept as payment for goods and services Buyers know that sellers will accept money in payment for products.

Functions of Money Standard of Value Money provides people with a way to measure the relative value of goods and services by comparing their prices. Example: Compare a bicycle to a 3D TV $419 Versus $3199

Standard of Value (continued) Helps consumers identify opportunity costs or 1 x $5 pizza 5 x $1 burgers Helps with record keeping Businesses can determine profits and losses

Functions of Money Store of Value Money can be saved, or stored, for later use Two Conditions to be a “Store of Value” The money must: Be non-perishable Cannot rot or deteriorate while being saved Keep value over time Purchasing power must be fairly constant What about Fruits and Vegetables? Or a dead rabbit?

Five Characteristics of Money To be used as money, at item must have: 1.Durability 2.Portability 3.Divisibility 4.Stability in Value 5.Acceptability

Durability Money’s ability to be used over and over again Poor Durability Eggs – perishable and fragile Ideal Durability Gold, silver – can withstand wear and tear

Portability Money’s ability to be carried from one place to another or transferred from one person to another Bad Portability Large Stones –used on south pacific islands Good Portability Paper Money and Coins

Divisibility Money’s ability to be divided into smaller units A US dollar can be divided into any amount between 1 and 100 cents Buyers and sellers can make transactions of any amount Helps with “Standard of Value” because you can make exact price comparisons

Stability in Value Money’s value will remain stable over time It may change slightly This makes money good for saving

Acceptability People are willing to accept money in exchange for their goods and services If a person accepts money, they know they can spend it on other products

BEADS SHELLS FLOUR STONES In groups, using functions and characteristics of money explain why these things don’t work as money

Sources of Money’s Value Money must have-and retain-value Where does the value come from? Three Sources of Value 1.Commodity Money 2.Representative Money 3.Fiat Money

Commodity Money Definition: Money that has a value of its own (as a commodity) and that also is used as money Example: Gold, Silver, Rubies, Diamonds, Emeralds, Salt, Tobacco All of these have been used as money

Representative Money Definition An item that has value because it can be exchanged for something else of value US money used to be backed my gold reserves, now it isn’t 9I&feature=relatedhttp:// 9I&feature=related 2:45-12:00

Fiat Money Definition: Money that has value because of gov’t fiat (decree) The money has value because the gov’t says it does. Examples US coins and paper money Materials used to produce coins are worth much less than the face value of the coin it represents.

Types of Financial Institutions Commercial Banks Savings and Loan Associations Mutual Savings Banks Credit Unions

Commercial Banks Main Functions: Lend money Accept deposits Transfer money between businesses, other banks, and individuals Offer the widest range of services of all financial institutions

Savings and Loan Associations Similar to commercial banks Both lend money and accept deposits Members deposit money into a large general fund and take turns borrowing it. Loans are usually for mortgages, but have expanded to school loans and car loans. Major Difference More than 65% of lending must be for mortgages Members have voting rights Can direct financial and managerial direction of the institution

Credit Unions When you deposit money, you purchase shares that pay interest Creates a savings pool to provide low cost loans to members Offer higher interest rates on savings Offer lower interest rates on loans

Banking Simulation Review ROUND 1 – No Banks Shopkeepers Sell goods and accept currency from traders If currency is from a different town they must take “Cost Cards” Buy goods on their shopping list with currency they take in Traders Use their currency to buy goods on their list Their currency is a promise that they will pay back on those bills What Happened? One ship didn’t come in, so the people holding Knox Town currency lost money.

Banking Simulation Review ROUND 2 – With Banks Same premise as before, minor changes. One common currency used by all, provided by bank Shopkeepers don’t take “Cost Cards” What happened? When holders of currency came to bank to get their money, the bank could not provide for the demand. BANK RUN! Too much currency in circulation, some people lose money

Banking Simulation Review Round 3 – Central Bank Instead of having a currency backed by gold, there are “Federal Reserve Notes” Trading occurs as before, but when bank run occurs, the central bank floods the economy with its bills

Banking Simulation Review Assignment Write a 1 page, double spaced paper about this simulation. Explain: What your role was Briefly describe the three rounds What you did How trading impacted you What kind of money was used (Fiat, Representative, Commodity How did banks impact trade? Why was there a bank run in round 2? How was a bank run stopped in round 3?