1. TAKE A GUESS What is the definition of money? Answer T/F
1. The reason for our money is to purchase goods
2. Money has not always been like today.
3. Coins are used because of the value they hold in themselves
4. The money in the USA is of value because the government says it holds value
5. Banks physically hold all of their deposits in a safe.

2. Chapter 14 – Section 1/2 ESSENTIAL INFORMATION
The 3 functions / uses of money
The 6 characteristics of money
The Federal Reserve Bank and Money Supply
Fractional Reserve Banking

3. Money and the 3 Functions
Money – anything that serves as a medium of exchange, a unit of account, and a store of value
Medium of exchange- anything that is used to determine value during the exchange of goods and services
Unit of Account- a means for comparing the values of goods and services
Store of Value- something that keeps its value if it is stored rather than spent

4. The 3 Types of Money
Commodity money- objects that have value in and of themselves and that are also used as money
Representative Money- objects that have value because the holder can exchange them for something of value
Fiat Money- objects that have value because a government has decreed that they are an acceptable means to pay debts.
CIRCLE THE TYPE THE USA HAS

5. Commodity Money
Why is commodity money impractical for use in our modern society?
Commodity money consists of objects that have value in and of themselves, like cattle, and that are also used as money
Commodity money lacks several characteristics that make objects good to use as money, such as _____?

6. Representative Money
Representative money makes use of objects that have value solely because the holder can exchange them for something else of value.
Early Rep. $ took the form of PAPER RECEIPTS FOR GOLD AND SILVER
People left their gold in goldsmith’s safes and would carry paper ownership receipts to show how much gold they owned.
During the American Revolution, problems arose with “Continentals” because they were not backed by gold or silver and were therefore useless.

7. Fiat Money
USA money today is fiat money, which has value because the government says it is acceptable.
Citizens have confidence that the money will be accepted
Because the Federal Reserve Bank controls the supply, it remains in limited supply, which enables it to keep its value.

8. 6 Characteristics of Good Money
Durable-withstands the elements
Portable-can take it with us
Divisible-can be divided into smaller units
Limited Supply-helps to keep value
Uniform-every quarter purchases something for 25 cents
Acceptable-can use the money to buy goods/services at all locations

9. Durability and Portability
Durability--Money must be able to withstand the physical wear and tear that comes with being used over and over again
Portability—Money must be easily carried by people. Paper money and coins work because they are small and light…and cards

10. Divisibility and Uniformity
Divisibility– money must be easily divided into smaller denominations
Uniformity- people must be able to count and measure money accurately

11. Limited Supply and Accountability
Limited Supply– to keep its value; therefore, the Federal Reserve regulates the amt. of money in circulation
Acceptability– everyone in an economy must be able to use it everywhere

12. Currency
The coins and paper bills people use as money are called currency
In the past, people have used many things as currency including cattle, salt, precious stones, fur, and dried fish
In today’s specialized economy, these things would not serve as good currency because they lack at least one of the 6 characteristics and the 3 functions.

13. Part 2
The Federal Reserve

14. The Gold Standard
A monetary system in which paper money and coins had the value of certain amounts of gold – and the government kept gold to back up the paper money
Is the USA on the gold standard?

15. Federal Reserve Bank (FED)
In order for the fiat system to work, we need to control our ____________! This is the responsibility of the FED.
This includes all of the different forms of money available in the economy

16. The FED
HOW DOES THE FEDERAL RESERVE BANK MEASURE HOW MUCH MONEY IS IN THE ECONOMY?
MONEY IS PUT INTO TWO CATEGORIES FOR MEASUREMENT

17. M1(supply) M2(supply) Immediately accessible Liquid All of M1 +
Cash, coins, checking accounts, travelers checks
All of M1 +
Can be turned into cash but the process is slower
Savings accounts, investments in stocks / retirement, equity in home

18. How can banks loan out more money than it physically holds?
FRACTIONAL RESERVE BANKING
Our system of banking where only a fraction of the deposits are kept in the bank. The rest is loaned out
The FED controls the required % of deposits that banks must hold so the money supply can be controlled

19. COMPOUND INTEREST
Interest paid on both the initial amount and the accumulated interest
EX:
$200 investment with 10% return = $20 in interest after 1 year
Year 2 - = $22 in interest for a total of $242 after 2 years

20. RETURN TO YOUR T/F questions and TRY ANSWERING THEM AGAIN