Money and the Financial Market
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Money
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Anything accepted for payment, anything a society can use to buy & sell goods
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Legal Tender
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U.S. ensures that everyone accepts payment
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Barter
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Exchange of one person's goods & services for another
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Double Coincidence of Wants
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Both parties involved in the trade wants what the other person has
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Commodity Money
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Commonly used goods become an economies medium of exchange ex. seashells, salt, gold, stones, silver
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Full-Bodied Coin
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Contains a quantity of metal equals a full face value
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Token Coin
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Does not contain any metal, no face value
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Representative Money
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Money that represents a comody
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Fiat Money
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Money that is backed by nothing, only worth what the government says it is worth
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M-1
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Money that we have available to spend right now ex. paper money, coins
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M-2
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Money that we have to spend now plus the money in your savings/ checking
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Fractional Reserve Banking
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Bank that has the banking system to create money, lends out more paper money than what it has backed up by gold
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List the 3 functions of money
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Means of payment, measure of value, & means of storing purchasing power
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List the desirable characteristics of money
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Convient, portable, divisible, durable, & stable
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Identify the different kinds of money
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Commodity money, token coin, fiot money, full-bodied coin, & money standards
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Describe the banking activities of goldsmiths that led to an expansion of the money supply
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Fraction banking reserve
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What characteristics should an effective monetary system possess?
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Portable, durable, divisible, & stable
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What are the 3 kinds of money that can circulate in an economy?
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Commodity money, representative money, & fiat money
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Name the 2 measures of the money supply discussed in your book & list what each includes.
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M-1: paper currency, checking accounts, coins, travelers check M-2: savings account, money markets
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Name the advantage & disadvantage of the traditional money used on the Yap Islands.
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Advantage: Easy to identify, hard to steal Disadvantage: lack of durability
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Are today's U.S. coins full-bodied or token coins? Explain.
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Token coins because they have no face value
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What two factors keep a fiat monetary system functioning?
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Faith that others will accept the money & limited quantity of money
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What type of money does the U.S. currently use?
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Fiat money
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Financial Market
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The collection of organizations that assist households in channeling their money to businesses & the government
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Commercial Banks
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A financial institution that accepts deposits & makes commercial loans
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Savings & Loan Associations or S&L's
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Have begun to resemble commercial banks
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Mutual Savings Banks
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Most are in the northeastern U.S.
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Credit Unions
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Give you the best deals when you want loans, formed by groups of people with a common interest
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Why can commercial banks also be refereed to as full-service banks?
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They offer a wide range of services. Ex. checking/ savings
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For what economic position was Milton Friedman a leading spokesman for and what did that position see as the principal cause for inflation?
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Monetarist. Money supply was the cause of inflation
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What does it mean to say that the U.S. has a dual banking system?
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Federal or state, they are all chartered
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What are the three functions of commercial banks?
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Accepting deposits, extending loans, & other services
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Which types of thrift usually originates with a group of people who have something in common?
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Credit Unions Ex. Delta Credit Union, Teachers Credit Union
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Give an example of a contractual saving institution.
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Insurance company & pension funds
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What are some disadvantages to having a monetary system backed by some precious commodity, such as gold or silver?
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Limited to the amount of gold & silver The popluation must increase for the money supply to increase Increase in the amount of gold & silver
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What is the problem of having a gold standard?
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Shortage & limited quantity of gold
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What gives banks the right to exist?
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A charter
