Ch. 10 Money

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

3 Uses of Money Medium of Exchange-anything used to determine value during the exchange of goods and services. Unit of Account-money provides a means for comparing the values of goods and services Store of Value-means that money keeps its value if you decide to hold onto-or store it instead of spending it. *When an economy experiences inflation, money does not function as well as store of value.

6 Characteristics of Money Durability-must withstand physical wear and tear. Portability Divisibility Uniformity-money must be the same Limited Supply Acceptability-we can spend American Money anywhere in the U.S.

Sources of Money’s Value Commodity money-objects that have value in themselves Representative Money-makes us of objects that have value because the holder can exchange them for something else of value. Fiat Money-legal tender, b/c the government says so

History of the American Banking System 1791-1st Bank of U.S. 20 years brought order and stability to American Banking 1816-2nd Bank of the U.S. restored order vetoed b/c of lack of distrust 1837 to 1863-Free Banking Era dominated by state banks

National Banking Acts of 1863 & 1864 Power to charter banks Require banks to hold adequate gold and silver reserves Issue national currency Gold Standard-a monetary system in which paper money and coins are equal to the value of a certain amount of gold. 1913-Federal Reserve System -nation’s first central bank 1933-Federal Deposit Insurance Corporation (FDIC)-insures customer deposits if a bank fails

Money Supply All the money available in the United States Economy M1 Assets that have liquidity or the ability to use or convert into cash M2 All assets in M1 plus Saving Deposits, Small Denomination CD’s and Money Market Funds

Banking Today Federal Reserve Note National currency we use today in the U.S.

Loans Default Mortgage Interest Principal Failure to pay back a loan Used to purchase real estate Interest Price paid for use of borrowed money Principal Amount of money borrowed