Chapter 11 Money and Banking Section 1, p. 285 Terms:

1. Chapter 11 Money and Banking Section 1, p. 285 Terms: • Barter economy • 285 economic system where money is not used. • Relies on trade • Hard to value trade items • Hard to divide trade items

2. Money • 286 any substance that serves as a medium of exchange • Measure of value • Store of value • Accepted by society

3. Medium of exchange • 286 something accepted by all parties as payment for goods and services • Gold • Silver • Salt • Salarium: annual pay for Roman soldiers = salary

4. Measure of value • 286 a common denominator that expresses worth that most people can understand. • US: price expressed in dollars and cents.

5. Store of value • 286 property of a medium that allows purchasing power to be saved until needed • Goods and services can be converted into money. Some, more than others • Precious metals/minerals • Vintage items (cars, wines, art….) • Money itself is a store of value

6. Commodity money • 287 has an alternative use as an economic good • Compressed tea • Spears • Parmigiano regianno

7. Fiat money • 287 has a monetary value by government decree. • Metallic coins/paper bills

8. specie • 288 money in the form of coins made from silver or gold

9. Monetary unit • 289 standard unit of currency in a country • US, dollar • Japan, yen • Britain, pound • China, yuan • Europe, Euro-dollar • India, rupee • Russia, ruble

10. Section 2, p. 292 Terms: • Monetary standard • 292 the mechanism that keeps the money supply….. • Portable • Durable • Divisible • In a limited supply

11. State banks • 293 banks that received their charter to operate from a state government • Issued their own currency • Backed by gold/silver • Subject to • Fraud • Counterfeiting

12. Legal tender • 295 fiat currency that must be accepted in payment of debts • Paper issued during the American Civil War • Aka: “greenbacks”

13. United States Notes • 295 a new fiat currency issued in 1862 • Legal Tender Act • Also called “greenbacks” • No gold or silver backing.

14. National banks • 295 privately owned banks that received their charters from the federal government. • Part of the National Banking System • All banks would be forced to join the NBS after 1865 • US government put a 10% tax on private banks not in the system.

15. National bank notes,national currency • 295 paper currency that was backed by US government bonds • Uniform appearance • Confidence backed by “rigorous” government inspections and audits of banks.

16. Gold certificate • 295 paper currency backed by gold • Gold deposited in the Federal Treasury • First used in large denominations for banks • Later smaller denominations for public use.

17. Silver certificate • 295 1878 paper currency backed by silver • Political gimmick to help the silver industry • Also put more currency in economy to stimulate consumption

18. Treasury coin notes • 296 paper currency issued by the US Treasury • Redeemable in gold or silver • Ended in 1893

19. Gold standard • 296 basic currency was equal to, could be exchanged for, a specific amount of gold. • 1900 Gold Standard Act • Could be exchanged at the Treasury for gold at any time.

20. Inconvertible fiat money standard • 297 US system since 1934 • A monetary standard under which the fiat money supply cannot be converted into gold or silver by its citizens.

21. Hwk Assessments, Class Work, to Know

22. Assessments: Checking for Understanding • 1 • Money allows people to buy directly what they need instead of waiting for a “mutual coincidence of wants” • Mutual coincidence of wants allows barter to happen.

23. Assessment • 3 • It serves as a medium of exchange • Measure of value • A store of value

24. Assessment • 4 • Tea leaves • cheese • Spears • Various commodity money

25. Assessment • 5 • US states printed their own money • Backed by gold/silver • Worked only for region • national economy was in chaos. • Federal government needed funds for the revolution and issued paper bills. • Idea was temporarily successful, but inflationary in the long run • The idea of a national monetary unit was popular, though. • Specie, not paper. • Name for dollar came from Austria

26. Assessment • 6 • Portability • Durability • Divisibility • Limited availability

27. Assessments: Checking for Understanding • 1. • To keep the money supply • Portable • Durable • Divisible • In a limited supply

28. Assessment • 3 • Before the US Civil War, most of the money was paper currency used by privately owned state-chartered banks.

29. Assessment • 4 • Greenbacks • National currency • Gold certificates • Silver certificates • Treasury coin notes

30. Assessment • 5 • Advantages: • Some feel secure if they know money can be converted into gold • Can prevent the government from printing too much paper currency • Disadvantages: • Gold stock may not grow fast enough to meet the needs of the economy • Drain on the government’s gold reserves • The price of gold fluctuates • Political risk of failure.

31. Gold buillion and dust

32. Assessment • 6 • It is a system under which the fiat money supply cannot be converted into gold or silver by its citizens.

33. talers • Austria used talers as their specie • It was a popular term when Benjamin Franklin and Alexander Hamilton needed a name for their American currency: • “Taler” became “dollar”

34. Image, p. 288 • Question: • It is generally accepted as payment for goods and services.

35. Image, p. 289 4/28 • Question • Portability • Durability • Divisibility • Limited availability

36. Image, p. 293 • Question • Article I, section 8

37. image, p. 294 • In the order in which the states were admitted to the Union.

38. Image, p. 297 • 1 • The depictions on currency reinforce national icons and symbols • Countries reluctant to surrender control of the own banking systems and macroeconomic policy. • 2 (EC) • For ten years, the Euro has been successful. • At one point, it was worth over USD $1.60. • Presently, due to member nations’ economic failures (Greece, Ireland, etc.), the Euro has dropped in value of USD $1.30