Economics Ms. Harris Chapters 10 and 16

1. EconomicsMs. HarrisChapters 10 and 16 Money, History of American Banking, Banking Today, The Federal Reserve System & Functions, and Monetary Policy

2. Chapter 10 - Key Terms/Questions, Section 1 – Money – pp 243 - 248 • 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/services for another

3. Barter - Direct exchange of one set of goods or services for another

4. Unit of Account • A means for comparing the values of goods/services 2009 Cadillac Escalade 2009 Kia Rio Hybrid - $73,135 $11,495

5. Store of Value • Something that keeps its value, even if it is stored, rather than used

6. Currency • Paper bills and coins used as money

7. Commodity Money • Objects that have value in themselves and that are also used as money

8. Representative Money • Objects that have value because the holder can exchange them for something else of value

9. Fiat Money • A fiat is an order or decree • Fiat money is money that has value because a government has decreed it is an acceptable means to pay debts.

10. Why does the United States’ currency have value? • The face value of US currency is decreed by the federal government

11. What are the disadvantages of commodity money? • Disadvantages vary depending on the commodity, but often include lack of portability, durability, or divisibility

12. What is a Continental and why did Continentals become worthless? • Representative money (bills) issued by Congress to finance the war against England. • The federal government could not tax the people and the reserve held very little gold or silver. People came to believe that they could not exchange their Continentals for gold and silver coins

13. “not worth a Continental”

14. What materials would you use if you were creating a new US coin? Why? l

15. The History of American Banking - pp 250 – 256 • Key Terms/Questions, Ch 10,Sec. 2

16. Bank • An institution for receiving, keeping, and lending money

17. National Bank • A bank that is chartered, or licensed, by the national government

18. Bank Run • Widespread panic in which great numbers of people try to redeem their paper money

19. greenback • Paper currency issued during the Civil War

20. Gold Standard • A monetary system of which paper money and coins are equal to the value of a certain amount of gold

21. Gold Standard - notes • The gold standard was replaced by fiat currency, whereby the government or central bank is ultimately responsible for the value of the money. • Until 1971, the U.S. dollar was fixed to the price of gold. Many economists feel that reverting to the gold standard would  quell inflation because of the fixed value feature.

22. Federal Reserve System • The nation’s central banking system

23. Central Bank • A bank that can lend to other banks in times of need

24. Member Bank • A bank that belongs to the Federal Reserve System

25. Federal Reserve Note • The national currency used in the United States today

26. Great Depression • The severe economic decline that marked 1929 as its beginning and lasted more than ten years.

27. Federal Deposit Insurance Corporation <http://www.fdic.gov/> • The FDIC insures bank deposits in order to ease the danger of depositors’ losing money, as happened after the stock market collapse in 1929 • Deposits at FDIC-insured institutions are now insured up to at least $250,000 per depositor through December 31, 2013.

28. What benefits came from adoption of the gold standard in the 1870s? • It set a definite value for the dollar -- one ounce of gold = $20 • Government was limited to printing notes only up to the value of the limited supply of gold • The public gained confidence in the banking system

29. Analyze the different views of Alexander Hamilton and Thomas Jefferson concerning the creation of a national bank • Hamilton (Federalist) believed the country needed a strong central government to establish economic and social order • Thomas Jefferson (Antifederalist) supported a decentralized banking system. The States would establish and regulate all banks within their borders

30. List the three powers endowed upon the federal government by the National Banking acts of 1863 and 1864. • Power to charter banks • Power to require banks to hold adequate gold and silver reserves to cover their bank notes • Power to issue a single national currency

31. Bank Runs and Panics • State-chartered banks often did not keep enough gold and silver to back the paper money that they issued

32. Wildcat Banks • Banks located on the edges of settled areas. • Wildcat banks had a high rate of failure

33. Fraud • A few banks engaged in out-and-out fraud (or cheating). They issued bank notes, collected gold and silver money from customers who bought the notes, and then disappeared. • Anyone who had bought the notes lost their money.

34. Many different currencies • State-chartered banks – as well as cities, private banks, railroads, stores, churches, and individuals – were allowed to issue currency. • A dollar issued by the “City of Atlanta” may not be worth the same as a dollar issued by “City of New York.” Many notes were counterfeit or worthless imitations of real notes.

35. Ch 10, Section 3 – Banking Today – pp 258 – 264 • money supply • All of the money available in the United States economy • Liquidity • The ability to be used as, or directly converted to cash

36. Demand Deposit • The money in checking accounts

37. Money Market Mutual fund • A fund that pools money from small savers to purchase short-term government and corporate securities .

38. Fractional Reserve Banking • A banking system that keeps only a fraction of funds on hand and lends out the remainder

40. default • Failure to pay back a loan

41. mortgage • A specific type of loan that is used to buy real estate

42. Credit card • A card entitling its holder to buy goods/services based on the holder’s promise to pay for these goods and services

43. interest • The price paid for the use of borrowed money

44. Principal • The amount of money borrowed

45. Debit Card • A card used to withdraw money from an account

46. creditor • Person or institution to whom money is owed

47. What is the difference between M1 and M2 money? Give an example of each. • M1 includes all money that is immediately accessible for people to use. Examples: cash, money in checking accounts, and traveler’s checks

48. What is the difference between M1 and M2 money? Give an example of each. - continued • M2 includes all of M1 plus all assets that are easily transferred into M1. Examples: savings account deposits, certificates of deposit, and money market mutual funds.

49. How is a debit card different from a credit card? • A debit card withdraws money directly from a checking or savings account • When a credit card is used for a purchase, it functions as a loan that needs to be paid

50. Describe the three of the services that banks provide. • Storing money safely • Lending money • Offering mortgages • Issuing credit cards