1. Chapter 11
Spring 2016

2. The Evolution of Money
Barter Economy – A moneyless economy that relies on trade
Money – A substance that serves as a medium of exchange, a measure of value, and a store of value
Medium of Exchange – Something accepted by all parties as payment for goods and services
Measure of Value – A common denominator that can be used to express worth in terms that most individuals understand
Store of Value – The Property that allows purchasing power to be saved until needed
Commodity Money – Money that has an alternative use as an economic good, or commodity
Fiat Money – Money by government decree

3. The Evolution of Money
Specie – Money in the form of coins made from silver or gold
Pesos in America – When George Washington became president the most common form of currency was the peso
Ben Franklin and Alexander Hamilton were put in charge to change this and came up with the dollar
Characteristics of Money
Portability – Easy to carry and transfer
Durability – Duh
Divisibility – Again…duh
Limited Availability – Wait for it……………Duh

4. Early Banking and Monetary Standards
Monetary Standard – The mechanism designed to keep the money supply portable, durable, divisible and limited in supply
Article 1, Section 10…No State can make their own money
This was enforced until the Civil War
The Civil War was when the government started producing paper money
Problems with Currency
Each bank had their own money
Banks could print more money even if they didn’t have it
Counterfeiting

5. Early Banking and Monetary Standards
The Greenback Standard – When the Federal Government started producing legal tender
Legal Tender – Fiat currency that must be accepted in payment for debts
1862 – Legal Tender Act – Federal Government started making money known as “Greenbacks”
This becomes known as a national currency
A 10% tax was levied on all other currency
Gold and Silver Certificates – Legal Tender backed by its worth in Gold or Silver
Treasury Coin Notes – Could be exchanged for Gold or Silver
Gold Standard – The concept that all legal tender must not exceed the amount of gold we have as a nation

6. Early Banking and Monetary Standards
Disadvantages of the Gold Standard
Gold stock may not grow fast enough
People may decide to cash in all their gold
Price of gold changes
Political Failure
Abandoning the Gold Standard
FDR during the Depression
Nixon in the 70’s

7. The Development of Modern Banking
1913 – Federal Reserve created – A central bank that can lend to other banks – Created by Woodrow Wilson
Issued Federal Reserve Notes
Banking during the Great Depression
Banks expanded too quickly
10,000 of 25,000 banks failed
A “Run on the Bank” bankrupted many banks
FDR declared a national “Bank Holiday”
FDIC created – (Glass-Stegal Act) Federal Deposit Insurance
When created $2,500 was insured for every customer
Increased to $100,000
Now it’s $250,000

8. The Development of Modern Banking
Commercial Banks – Banks strictly for business and commerce
Time Deposits – Money cannot be removed for a certain amount of time
Checking Accounts – Also known as Demand Deposits
NOW (Negotiable Order of Withdrawal) accounts – A checking account that pays interest
Savings and Loans (S&L) – Banks that invest the majority of their funds into home mortgages
Credit Union – A nonprofit bank for only its members
Deregulation by Reagan– The removal or relaxation of government restrictions on business
Led to the Savings and Loans crisis in the 1980’s
Many S&L’s changed their name to avoid scandal (WAMU)

9. The Development of Modern Banking
M1 = Cash, coin and demand deposits
M2 = M1 + Small Time Deposits + Savings Deposits
M3 = M2 + Large Time Deposits (No longer exists)

10. All Content Created by DJ Cook