Money and Banking

Drill 11/12 What is money?

How much is a dollar REALLY worth? A dollar? How about 20 years ago? How about in France? Is a dollar really worth anything?

What is money? MONEY Anything that serves as a medium of exchange, a unit of account and a store of value

A medium of exchange Money needs to be able to be exchanged for other goods/ services. It needs to be WORTH something to a society

A Unit of Account A way to measure the value of different goods/ services How much does a movie ticket cost? How much does a new car cost? How do you know this without looking it up?

A store of value Money must HOLD ITS VALUE if stored rather than used. If we dealt in commodities like wheat and olive oil they would go bad and therefore are not good things to base money on

There are three types of money Commodity Money Physical objects that have value that are also used as money Wheat, gold, silver – the actual things. Representative Money Objects that have value because they can be exchanged for other things that have value

Representative Money A united States Silver certificate – The US Government stopped redemption of them during the 1970’s

Fiat Money AKA Legal Tender. Money that has value because it is backed by the government of a country. Current day money.

Drill 11/13 What three conditions must money meet to be considered money?

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

Money has specific characteristics Durability It can last a long time without losing its value or physical makeup Portability People need to be able to carry it with them Divisibility Easily divided denominations

Uniformity Limited Supply Acceptability Units of money must be the same in terms of what they will buy Limited Supply How money retains its value Acceptability It needs to be accepted as currency by the society

The Value of money Read the BBC article on the value of the dollar versus the Euro. On your own sheet: answer the following questions What “Protectionism?” What is China’s reaction to the tariffs? How can weakening the dollar help close the trade deficit? How is the fear of terrorism affecting the dollar?

Drill 11/14 What is the difference between M1 + M2? Why must banks balance profit and security when making loans?

Banking

The beginning In 1791 The First Bank of the US was founded Issued REPRESENTATIVE MONEY backed by Gold and Silver Regulated state banks to make sure that they had enough gold/ silver deposits to cover demand if it should rise.

The banks fail The First bank will fail, A second bank is created and its charter runs out. Between 1800 and the 1860’s there was NO centralized banking system in the US. It was all run by the states with different currencies being issued and wildly different laws.

Lincoln Signs the National Banking Acts Between 1863 and 1864 The National Banking Acts gave the US the power to: Charter Banks To require banks to hold gold and silver to meet demand The power to offer a single national currency

The Gold Standard By the 1870’s the nation had adopted the Gold Standard The nation’s money was now linked to the price of gold This stabilized the dollar and made people more confident in the system

The Federal Reserve System Founded in 1913 to regulate banks and the money supply Built to end the panics and recessions of the 1800’s THE GREAT DEPRESSION – fat lot of good the Fed did.

The system ended in the 1930 FDR outlawed the private ownership of gold, except for jewelry purchases. Meaning that the currency would go from being Representative to Fiat notes. Inherently worthless except for exchange.

After the depression We have the banking system we see today. Federal Deposit Insurance Corporation FDIC Government insures all deposits up to $100K

Big-Banks and Small Answer questions 1-4 on page 264 Read the Big Banks vs Small banks comparison on 265 Answer the questions in complete sentences