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Unit: Monetary Policy

Learn about the different types of money, the functions of money, the history of money, and how money is backed. Understand the difference between credit cards and debit cards, as well as the concept of bonds and stocks.

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Unit: Monetary Policy

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  1. Unit: Monetary Policy

  2. Who is on the… • $100 Bill • $50 Bill • $20 Bill • $10 Bill • $5 Bill • $2 Bill • 50 Cent • Dime • $1000 Bill • $100,000 Bill • Franklin • Grant • Jackson • Hamilton • Lincoln • Jefferson • JFK • FDR • Cleveland • Wilson Money!!! Bonus: “E Pluribus Unum” means…. “Out of Many, One”

  3. Which penny is real?

  4. The Barter System Problems • Before trading, each trader had to have something the other wanted. Goods & services are traded directly. Money is not used Some goods cannot be split. If 1 goat = 2 pigs, how do you trade if you only want 1 pig? Example: A heart surgeon might accept only certain goods but not others because he doesn’t like broccoli. To get the surgery, a pineapple grower must find a broccoli farmer that likes pineapples.

  5. 3 Functions of Money A Unit of Account/ Standard of Value Medium of Exchange A Store of Value Money measures the value of all goods and services. Money acts as a measurement of value. 1 pig = $50 = 5 cats OR 1 cat = $10 Money can easily be used to buy goods and services with no complications of barter system. Money allows you to store purchasing power for the future. Money doesn’t die or spoil.

  6. Weird Money Giant stone disks were used as money on the Yap Islands. Some disks were 12ft wide.

  7. 2 Systems of Money Commodity Money: Something that performs the function of money and has alternative uses. Examples: Gold, silver, cigarettes, etc. Fiat Money:Something that serves as money but has no other important uses. Examples: Paper Money, Coins = Fiat • Note the Seal Colors: • Green seal: Federal Reserve Note, legally a first lien on the assets of the issuing bank. Issued from 1929 to date. • Red Seal: United States Note, legally a promissory note. Issued from 1929 to 1971. • Blue Seal: Silver Certificate, legally a bearer's receipt for silver coins (or silver bullion) on deposit with the US treasurer. Issued from 1929 to 1963. • Yellow Seal: Gold Certificate, legally a bearer's receipt for gold coins on deposit with the US treasurer. Issued from 1929 to 1933.

  8. 3 Types of Money Liquidity- ease with which an asset can be accessed and converted into cash (liquidized) M1 (Money Supply/High Liquidity) - Coins, Currency, and Checkable deposits. M2 (Medium Liquidity) - M1 plus savings deposits, time deposits (CDs = certificates of deposit), and Mutual Funds below $100K. M3 (Low Liquidity) - M2 plus time deposits above $100K.

  9. What is the difference between credit cards and debit cards? Debit Cards Credit Cards Is based on the money you have in the bank. Ex: If your bank account has $20, you can only spend $20. Is a short-term loan. Ex: You buy a shirt with a credit card, VISA pays the store, you pay VISA the price of the shirt plus interest and fees. Total credit cards in circulation in U.S: 576.4 million Average number of credit cards per cardholders: 3.5 Average credit card debt per household : $15,950

  10. Bonds vs. Stocks Pretend you are going to start a lemonade stand. You need some money to get your stand started. What do you do? • You ask your grandmother to lend you $100 and write this down on a piece of paper: "I owe you (IOU) $100, and I will pay you back in a year plus 5% interest." • Your grandmother just bought a bond. • Bonds are loans that represent debt that the government or a corporation must repay to an investor. The bond holder has NO OWNERSHIP of the company. • Ex: War Bonds During World War II But, now you need more money…

  11. To get more money, you sell half of your company for $50 to your brother Tom. • You put this transaction in writing: "Lemo will issue 100 shares of stock. Tom will buy 50 shares for $50." • Tom has just bought 50% of the business. He is allowed to make decisions and is entitled to a percent of the profits. Stockowners earn a profit • Dividends - portions of a corporation’s profits that are paid out to stockholders. • The higher the corporate profit, the higher the dividend • A capital gain is earned when a stockholder sells stock for more than he or she paid for it.

  12. What backs the money supply? Supply and Demand • What makes money effective? • Generally Accepted - Buyers and sellers have confidence in the system. • Scarce - Money must not be easily reproduced. • Portable and Dividable - Money must be easily transported and divided.

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