Money and Banking CHAPTER Origins of Money

Slides:



Advertisements
Similar presentations
Money and the Banking System
Advertisements

1 Chapter 18 Practice Quiz Tutorial Money and The Federal Reserve ©2004 South-Western.
1 Chapter 24 Money and the Federal Reserve System Key Concepts Key Concepts Summary Summary Practice Quiz Internet Exercises Internet Exercises ©2002 South-Western.
13.1 WHAT IS MONEY? ● money Any items that are regularly used in economic transactions or exchanges and accepted by buyers and sellers.
PART SIX Money, Banking, and Monetary Policy. Chapter 15: Money and Banking Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Paul Schneiderman, Ph.D., Professor of Finance & Economics, Southern New Hampshire University ©2008 South-Western.
CHAPTER 10.1 MONEY Three uses of $ 6 Characteristics of $ Source of $’s value MONEY Three uses of $ 6 Characteristics of $ Source of $’s value.
1 Chapter 5 Money and the Federal Reserve These slides supplement the textbook, but should not replace reading the textbook.
1.Barter 2.What is money? 3.The functions of money 4.Commodity, representative, and fiat money 5.Financial intermediaries 6.The Federal Reserve System.
© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. Fernando & Yvonn Quijano Prepared by: Chapter 13 Money,
Copyright © 2010 Pearson Addison-Wesley. All rights reserved. Chapter 3 What Is Money?
Chapter 10 Money and Banking Money Money is anything that serves 3 purposes: Money is anything that serves 3 purposes: –Medium of Exchange – used when.
CONTEMPORARY ECONOMICS© Thomson South-Western 16.3Money, Near Money, and Credit Cards  Describe the narrow definition of money.  Explain why distinctions.
Chapter 13 Money and Our Banking System. Copyright © 2005 Pearson Addison-Wesley. All rights reserved.13-2 Learning Objectives List the functions of money.
Chapter 14 Money and Our Banking System. Money is whatever people generally accept Functions of Money Medium of Exchange – payment for goods and services.
BuffDaniel Presents Money and Banking Chapter 2 Money.
27 The Monetary System Notes and teaching tips: 10 and 13.
Ch. 01: Money and Banking. Money Money, also referred to as the money supply, is defined as anything that is generally accepted in payment for goods or.
CONTEMPORARY ECONOMICS© Thomson South-Western LESSON 16.1 SLIDE 1 Money and Banking Origins of Money 16.2Origins of Banking and the Federal Reserve.
Section 1 The Origins of Money. Barter Economy An economy with no money. An economy with no money. Based on trading one item for another. Based on trading.
Chapter 11 Money and Banking. Barter Economy Coincidence of wants Cumbersome Time-consuming Indivisible.
1 Chapter 24 Money and the Federal Reserve System Key Concepts Key Concepts Summary Summary Practice Quiz Internet Exercises Internet Exercises ©2000 South-Western.
Money Objectives Describe the three uses for money
1 Chapter 24 Money and the Federal Reserve System Key Concepts Key Concepts Summary Summary Practice Quiz Internet Exercises Internet Exercises ©2002 South-Western.
The Monetary System CHAPTER 11 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Define money.
Chapter 10 Money and Banking. Section 1: Money Objective: Describe the three uses of money. List the 6 characteristics of money. Analyze the sources of.
Chapter 14. Chapter 14, Section 1  Money: Anything customarily used as a medium of exchange, a unit of accounting and a store of value.  Without money,
EPF 1 st Quarter-Unit 4 The Role of Money Framework 6a, 6b, & 12a.
Money and Banking Origins of Money Origins of Banking and the Federal Reserve System Money, Near Money, and Credit Cards CHAPTER.
Ch. 01: Money and Banking Intro. to Money and Banking Syed Ashfaq.
Money Chapter 10. What is Money? Money is anything that serves as a medium of exchange, a unit of account, and a store of value.
Unit IV The Financial Sector
Chapter 3 What Is Money?.
Chapter 3 What Is Money?.
Chapter 3 What Is Money?.
THE FINANCIAL SECTOR AND THE DEMAND FOR MONEY
Money Aggregates Money aggregates M1 = Narrow definition of money
Chapter 12 Money and banking Economics, 8th Edition Boyes/Melvin.
The Nature and Creation of Money
27 The Monetary System CHAPTER. 27 The Monetary System CHAPTER.
Chapter 14 Money & Banking
Chapter 3 What Is Money?.
Money and the Banking System
Chapter 12: Money, Banking, and the Financial System
Chapter 3 What Is Money?.
The Banking System and the Money Supply
Money Chapter 10.
Money Chapter 10.
© EMC Publishing, LLC.
Personal Finance Mr. Hargett
The Measurement and Time Value of Money
Economics: Principles in Action
Money and the Financial System
10 C H A P T E R Money and Banking.
Chapter 3 What Is Money?.
Chapter 3 What Is Money?.
13.1 WHAT IS MONEY? ● money Any items that are regularly used in economic transactions or exchanges and accepted by buyers and sellers.
29 The Monetary System.
What is the purpose of a bank?
Read to Learn Discuss the functions and characteristics of money. Discuss three main functions of a bank.
Economics: Principles in Action
Chapter 14 Review Money and Banking.
Meaning of Money What is it?
Chapter 10: Money and Banking Section 3
Unit IV The Financial Sector
Money & Banking Subtitle.
Chapter 10: Money and Banking Section 3
Chapter 10: Money and Banking Section 3
The Nature and Creation of Money
Chapter 10 Money and Banking.
Presentation transcript:

Money and Banking CHAPTER 18 18.1 Origins of Money 18.2 Origins of Banking and the Federal Reserve System 18.3 Money, Near Money, and Credit Cards

18.1 Origins of Money Learning Objectives LO1 Trace the evolution from barter to money. LO2 Describe the three functions of money. LO3 Identify the properties of ideal money. CHAPTER 18

Key Terms medium of exchange commodity money CHAPTER 18

The Evolution of Money Problems with barter The birth of money CHAPTER 18

Three Functions of Money Medium of exchange Medium of exchange—anything generally accepted by all parties in payment for goods or services Commodity money—anything that serves both as money and as a commodity, such as gold Unit of account Store of value CHAPTER 18

Commodity Money Limitations of commodity money—most falls short of the ideal money Coins CHAPTER 18

Seven Desirable Qualities of Ideal Money Quality 1 Durable Rationale Money should not wear out quickly. Good Examples Paper money Coins Sea shells Bad Examples Strawberries Seafood CHAPTER 18

Seven Desirable Qualities of Ideal Money Quality 2 Portable Rationale Money should be easy to carry, even large sums. Good Examples Diamonds Paper money Bad Examples Lead bars Potatoes Corn CHAPTER 18

Seven Desirable Qualities of Ideal Money Quality 3 Divisible Rationale Market exchange is easier if denominations support a wide range of possible prices. Good Examples Honey Paper money Coins Bad Examples Cattle Diamonds CHAPTER 18

Seven Desirable Qualities of Ideal Money Quality 4 Uniform Quality Rationale If money is not of uniform quality, people will hoard the best and spend the rest, reducing the quality of money in circulation Good Examples Salt bricks Paper money Coins Bad Examples Diamonds CHAPTER 18

Seven Desirable Qualities of Ideal Money Quality 5 Low Opportunity Cost Rationale The fewer resources tied up in creating money, the more available for other uses. Good Examples Iron coins Paper money Bad Examples Gold coins Diamonds Corn CHAPTER 18

Seven Desirable Qualities of Ideal Money Quality 6 Stable Value Rationale People are more willing to accept and hold money if they believe it will keep its value over time. Good Examples Anything whose supply can be controlled by the issuing authority, such as paper money. Bad Examples Farm crops Gold CHAPTER 18

Seven Desirable Qualities of Ideal Money Quality 7 Limited Supply Rationale Anything that can be easily gathered or produced would not serve well as money. Good Examples Gold and silver are produced with great effort. Bad Examples Leaves Rocks CHAPTER 18

18.2 Origins of Banking and the Federal Reserve System CONTEMPORARY ECONOMICS 9/11/2018 18.2 Origins of Banking and the Federal Reserve System Learning Objectives LO1 Describe how the earliest banks made loans. LO2 Based on whom they lend to, identify two types of depository institutions. LO3 Explain when and why the Federal Reserve System was created. CHAPTER 18 CHAPTER 18

CONTEMPORARY ECONOMICS 9/11/2018 Key Terms check fractional reserve banking system representative money fiat money Federal Reserve System (the Fed) discount rate Federal Open Market Committee (FOMC) open-market operations CHAPTER 18 CHAPTER 18

The Earliest Banks Keeping money, such as gold coins, on deposit with a goldsmith was safer than carrying it around or leaving it at home, where it could be easily stolen. But visiting the goldsmith every time you needed money was a nuisance. CHAPTER 18

Bank Checks Notes instructing the goldsmith to pay someone were the first bank checks. A check is a written order for the bank to pay money from amounts deposited. CHAPTER 18

Bank Loans Checking account Medium of exchange Public confidence Fractional reserve banking system In a fractional reserve banking system only a portion of bank deposits is backed by reserves. The reserve ratio measures bank reserves as a share of deposits. CHAPTER 18

Bank Notes Bank notes were pieces of paper promising the bearer a specific amount of gold or silver when the notes were redeemed at the issuing bank. Checks could be redeemed for gold only if endorsed by the payee. Bank notes could be redeemed for gold by anyone who presented them to the issuing bank. A bank note was “as good as gold.” CHAPTER 18

Representative Money Bank notes that exchanged for a specific commodity, such as gold, were called representative money. The paper money represented gold in the bank’s vault. Initially, these promises to pay were issued by banks. Over time, governments took a larger role in printing and circulating bank notes. CHAPTER 18

Fiat Money Once representative money became widely accepted, governments began issuing fiat money. Fiat money is money of no value in itself and not convertible into gold, silver, or anything else of value; declared money by government decree. CHAPTER 18

Depository Institutions Commercial banks Thrifts Savings and loan associations Mutual savings banks Credit unions Dual banking system State banks National banks CHAPTER 18

The Federal Reserve System Birth of the Federal Reserve System Established in 1913 Federal Reserve System (the Fed)—the central bank and monetary authority of the United States Powers of the Federal Reserve System Reserves Discount rate—interest rate the Fed charges banks that borrow reserves CHAPTER 18

The Federal Reserve System (continued) Directing monetary policy Federal Open Market Committee Federal Open Market Committee (FOMC)—12-member group that makes decisions about open-market operations Open-market operations—buying or selling U.S. government securities as a way of regulating the money supply and interest rates CHAPTER 18

The 12 Federal Reserve Districts Figure 18.2 Source: Federal Reserve Board. CHAPTER 18

Organization Chart for the Federal Reserve System Figure 18.3 CHAPTER 18

18.3 Money, Near Money, and Credit Cards CONTEMPORARY ECONOMICS 18.3 Money, Near Money, and Credit Cards Learning Objectives LO1 Describe the narrow definition of money. LO2 Explain why distinctions among definitions of money have become less meaningful over time. CHAPTER 18 CHAPTER 18

CONTEMPORARY ECONOMICS 9/11/2018 Key Terms M1 checkable deposits M2 CHAPTER 18 CHAPTER 18

Narrow Definition of Money: M1 Money aggregates are various measures of the money supply. The narrow definition, called M1 , consists of currency (including coins) held by the nonbanking public, checkable deposits, and traveler’s checks. CHAPTER 18

Currency in Circulation Dollar bills and coins in circulation are part of the money supply as narrowly defined. Money in bank vaults or on deposit at the Fed is not in circulation as a medium of exchange and so is not counted in the money supply. Currency makes up about one-half of M1. CHAPTER 18

U.S. Currency Abroad More than half of all Federal Reserve notes, particularly $100 notes, are in foreign hands. Wealthy people around the world, especially in unstable countries or countries that have experienced high inflation, often hoard U.S. currency as insurance against hard times. Some countries, such as Panama, Ecuador, and El Salvador, even use U.S. dollars as their own currency, a process called dollarization. CHAPTER 18

Checkable Deposits Checkable deposits—deposits in financial institutions against which checks can be written and ATM, bank, or debit cards can be applied About half of checkable deposits are demand deposits. In recent years, banks have developed other types of checking accounts. Checkable deposits make up about one-half of M1. CHAPTER 18

Traveler’s Checks Users sign traveler’s checks twice. Once at the bank at the time of purchase Again when the check is spent A merchant compares the two signatures to confirm the user is the rightful owner. Traveler’s checks are safer than cash because they can be replaced in the event of loss or theft. Traveler’s checks are a tiny part of the money supply—only a fraction of 1 percent of M1. CHAPTER 18

Broader Definitions of Money: M2 M2—a broader definition of the money supply, consisting of M1 plus savings deposits, small-denomination time deposits, and money market mutual fund accounts owned by households CHAPTER 18

Savings Deposits Savings deposits earn interest but have no specific maturity date. This means that you can withdraw them any time without a penalty. CHAPTER 18

Time Deposits Time deposits earn a fixed rate of interest if held for a specified period. The holding period ranges from several months to several years. Holders of time deposits are issued certificates of deposit, or CDs for short. Early withdrawals are penalized by forfeiture of several months’ interest. CHAPTER 18

Money Market Mutual Fund Accounts Money market mutual fund accounts are another component of the money supply more broadly defined as M2. Funds deposited in these accounts are used to purchase a collection of short-term interest-earning assets by the financial institution that administers the fund. CHAPTER 18

Debit Cards but Not Credit Cards A credit card itself is not money. Using a credit card is a convenient way of obtaining a short-term loan from the card issuer. You don’t use money until you pay your credit card bill. The credit card has not eliminated your use of money. It has merely delayed it. When you use a debit card, you draw down your checking account—part of M1. CHAPTER 18

Electronic Money Much of modern money consists of electronic entries in bank computers. So, money has evolved from a physical commodity to an electronic entry. Money today not so much changes hands as it changes computer accounts through electronic funds transfers. CHAPTER 18

M1 and M2: Alternative Measures of the Money Supply, Week of June 20, 2011 CHAPTER 18