Chapter 10 – Money & Banking
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What are the three uses of money?
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A medium of exchange, a unit of account, a store of value
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What are the six characteristics of money?
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Durability, portability, divisibility, uniformity, limited supply, acceptability
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What is the source of money's value?
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Commodity, representative, fiat
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Describe the shifts between centralize and decentralized banking before the Civil War.
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The Federalists, led by Alexander Hamilton, believed that a centralized banking system was a key to promoting industry and trade. They proposed a national bank. The Antifederalists, led by Thomas Jefferson, opposed this plan. They feared that the wealthy would gain control of the bank and use its resources to increase their power.
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How did government reforms stabilize the banking system in the later 1800s?
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The first paper currency since the Continental was issued; The National Banking Acts of 1863 and 1864 gave the federal government the power to charter banks, issue currency, and hold gold and silver reserves to cover bank notes; adopted the gold standard.
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What were the developments in banking in the early 1900s?
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Federal Reserve System; Federal Reserve Banks; Member banks; Federal Reserve Board; Short-Term Loans; Federal Reserve Notes
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What were the causes of two recent banking crises?
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Savings and Loan Crisis - the deregulation of several industries Subprime Mortgage Crisis - people couldn't pay back their loans and had to foreclose on their houses
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How is the money supply in the United States measured?
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M1: traveler's checks, currency, demand deposits, and other checkable deposits M2: savings deposits, retail money market funds, small denomination time deposits, and everything in M1
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What are the functions of financial institutions?
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To provide electronic services; to issue credit cards; to make loans to businesses; to provide mortgages to prospective home buyers; to manage ATM machines
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What are the different types of financial institutions?
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Commercial Banks, Savigs and Loan Associations, Saving Banks, Credit Unions, Financial Companies
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What changes were brought about by electronic banking?
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Automated Teller Machines (ATMs), debit cards, and home banking
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What is money?
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Anything that is generally accepted as final payment for goods and services
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What is a medium of exchange?
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Anything that is used to determine value during the exchange if goods and services
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What is barter?
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The direct exchange of one set of goods or services for another without involving money
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What is a unit of account?
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A means for comparing the values of goods and services
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What is a store of value?
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Something that keeps it's value if it is stored rather than spend
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What is currency?
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Coins and paper bills used as money
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What is specie?
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Coins made of gold
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What is a bank run?
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A situation in which many depositors simultaneously decide to withdraw money from a bank
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What is liquidity?
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A measure of the ease with which an asset can be converted into money without significant loss of value
