TECHNICAL DEFINITION (ridiculous) CH. 10: MONEY WHAT IS MONEY? TECHNICAL DEFINITION (ridiculous) :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 $29 MP3 Player 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 FIAT: the government says its valuable COMMODITY: 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 1837-1864 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 Easy Access Money: Cash Checks Debit Card Slower Access Money: Savings Accounts Mutual Funds CDs
BANKS ALSO: KEEP YOUR MONEY SAFE ALLOW YOU TO SAVE MONEY LOAN MONEY FOR HOMES, CARS, ETC. CREDIT CARDS AND MORE!
5 TYPES OF BANKS: Commercial Savings and Loan Savings Credit Unions Finance Companies
Types of bank accounts – Savings Checking Money Market Certificate of Deposit
HOW DO BANKS MAKE MONEY? The Federal Reserve requires that banks FRACTIONAL RESERVE SYSTEM: The Federal Reserve requires that banks keep a portion of all deposits on hand
THEY LOAN THE REST TO OTHER PEOPLE... 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!!