Transcript
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Money and the Federal Reserve System
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barterThe direct exchange of one good for another good, rather than for money
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What is the problem with barter?
It requires a coincidence of wants
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moneyAnything that serves as a medium of exchange, unit of account, and store of value
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advantage of money
simplifies and therefore increases market transactions
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functions of money• Medium of exchange• Unit of account• Store of value
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medium of exchangewidely accepted in exchange for goods and services
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unit of account (standard of value)
provide a common measurement of value of goods and services
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store of value ability of money to hold value over time
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Are credit cards money?No, credit cards fail to meet the store-of-value criterion and are therefore not money
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What are other properties of money?
Money must be …• portable• divisible• uniform• acceptable
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Is our money backed by gold or silver?
No, our paper money was exchangeable for gold until 1934, and in 1963 Congress removed the right to exchange $1 bills for silver
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fiat moneyMoney accepted by law and not because of redeemability or intrinsic value
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What makes our dollar bills fiat money?
All our bills claim that “This note is legal tender for all debts public and private”
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legal tenderLegally dollar bills cannot be refused as payment for a debt
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currencyMoney, including coins and paper money
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the Federal Reserve System
The 12 central banks that service banks and other financial institutions within each of the Federal Reserve districts
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Ben BernankeChairman of the Board of Governors of the Fed
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What does a federal reserve bank do?
• Controls the money supply• Clears checks• Supervises and regulates banks• Maintains and circulates currency• Protects consumers• Maintains federal government
checking accounts and gold
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What is the Federal Deposit Insurance
Corporation?The FDIC is a government agency established in 1933 to insure commercial bank deposits up to a specified limit
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