Splash Screen. Chapter Menu Chapter Introduction Section 1:Section 1:The Functions and Characteristics of Money Section 2:Section 2:History of American.

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Chapter Menu

Chapter Introduction

Section 1: The Functions and Characteristics of Money

Section 2: History of American Money and Banking

Section 3: Types of Money in the United States

Visual Summary

Chapter Intro 1

Governments strive for a balance between the costs and benefits of their economic policies to promote economic stability and growth.

Chapter Intro 2

When you think of the word money, what comes to mind? Besides coins and cash, what other types of money can you name? In this chapter, read to learn about the functions of money and the role of the banking system.

Chapter Preview-End

Section 1-Main Idea

Section Preview

In this section, you will learn about the different uses, characteristics, and types of money.

Section 1

The Functions of Money

Money functions as a medium of exchange, a unit of accounting, and a store of value.

Section 1

The Functions of Money (cont.)

• Economists identify money by certain functions.

• Medium of exchange

– Without money, people would have to barter.

Section 1

• Unit of accounting

The Functions of Money (cont.)

• Store of value – use of money to store for future time.

– Price allows people to determine the better bargain and to keep accurate financial records.

A. A

B. B

C. C

Section 1

Can you name some reasons that using money is more efficient than bartering?

A. Many reasons

B. Some reasons

C. No reasons

A B C

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Section 1

Characteristics of Money

Any item to be used as money must first meet certain criteria.

Section 1

Characteristics of Money (cont.)

• Anything that people are willing to accept in exchange for goods can serve as money.

• However, some items are easier than others to use.

View: Characteristics of Money

A. A

B. B

C. C

D. D

Section 1

A B C D

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Which one of the following characteristics do you view as most important regarding money?

A. Durability

B. Portability

C. Scarcity

D. Acceptability

Section 1

Types of Money

Today, all United States money is fiat money that is not backed by gold or any other commodity.

Section 1

Types of Money (cont.)

• Past mediums of exchange:

– Commodity money

– Representative money

Section 1

Types of Money (cont.)

• Today all U.S. money is fiat money.

• It is considered legal tender.

A. A

B. B

C. C

Section 1

Can you think of reasons that fiat money is better than commodity or representative money?

A. Many reasons

B. Some reasons

C. No reasons

A B C

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Section 1-End

Section 2-Main Idea

Section Preview

In this section, you will learn about important events in the history of U.S. money and banking and about present-day banking services.

A. A

B. B

C. C

Section 2-Polling Question

Have you witnessed any changes in banking or money in your lifetime?

A. Many changes

B. Some changes

C. No changes

A B C

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Section 2

History of American Banking

Throughout history, instability in the banking system has contributed to business fluctuations.

Section 2

History of American Banking (cont.)

• The history of money in the U.S. is closely tied to the development of the nation’s banking system.

View: Time Line of Money and Banking

Section 2

Banking Services

The efficiency of banking services has increased as computer technology has reduced the dependence on paper.

Section 2

Banking Services (cont.)

• Banks and savings institutions offer a wide variety of services, including:

– Checking accounts

– Interest on certain types of checking accounts

– Automatic deposit and payment

– Storage of valuables

Section 2

– Transfer of money from one person to another.

– Overdraft checking

Banking Services (cont.)

Section 2

• Banking changed greatly in the late 1970s with the computer.

• Electronic funds transfer (EFT) has increased speed and efficiency of banking.

• Most common feature of EFT is the automated teller machines (ATMs).

• The internet allows people to do their banking from home.

Banking Services (cont.)

Section 2

• There are some concerns with the use of EFT.

• The possibility of tampering and lack of privacy are drawbacks of EFT.

• The Electronic Funds Transfer Act of 1978 describes the rights and responsibilities of participants in EFT systems.

Banking Services (cont.)

A. A

B. B

C. C

Section 2

Would you do your banking online even with the threat of identity theft?

A. Definitely

B. Depending on the situation

C. Not at all

A B C

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Section 2-End

Section 3-Main Idea

Section Preview

In this section, you will learn about what counts as money and near money in the United States.

Section 3

Money and Near Moneys

The money supply consists of not only bills and other coins, but also checking and savings deposits and certain other liquid investments.

Section 3

Money and Near Moneys (cont.)

• The Bureau of Mint makes all the coins in the United States.

• They account for about 5% of the currency in circulation.

• The rest consists of Federal Reserve Notes issued by Federal Reserve banks.

Section 3

Money and Near Moneys (cont.)

• The largest part of the money supply in the U.S. consists of checking accounts. These are also called checkable deposits.

• Today all thrift institutions offer many of the same services as commercial banks.

View: Managing a Checking Account

Section 3

• The use of a credit card to purchase goods and services is not money. It is really a loan by the issuer of the card.

• A debit card, on the other hand, automatically withdraws funds from a checkable account.

• Other assets are almost, but not exactly like money. Time deposits and savings account balances are near moneys.

Money and Near Moneys (cont.)

A. A

B. B

C. C

Section 3

Do you feel that the use of a credit card is wise?

A. Definitely

B. Somewhat

C. Not at all

A B C

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Section 3

The Money Supply

Economists use both narrow and broad definitions of the money supply to measure the amount of money in circulation.

Section 3

The Money Supply (cont.)

• Two definitions of money supply are used in the United States today:

– M1—narrowest definition of the money supply

– M2—broader definition of the money supply

View: M1 and M2

Section 3-End

VS 1

Money functions as a medium of exchange, a unit of accounting, and a store of value.

VS 2

All money, whether bills, coins, or some other item, must have specific characteristics.

VS 3

Money and near moneys include bills, coins, checkable deposits, savings accounts, debit and credit cards, and time deposits.

VS-End

Figure 3

Figure 3

Figure 4

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Economic Concepts Transparencies

Transparency 5 Economic Institutions and Incentives

Transparency 6 Exchange, Money, and Interdependence

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Vocab1

money: anything customarily used as a medium of exchange, a unit of accounting, and a store of value

Vocab2

medium of exchange: use of money for exchange for goods or services

Vocab3

barter: exchange of goods and services for other goods and services

Vocab4

unit of accounting: use of money as a yardstick for comparing the values of goods and services in relation to one another

Vocab5

store of value: use of money to store purchasing power for later use

Vocab6

commodity money: a medium of exchange such as cattle or gems that has value as a commodity or good aside from its value as money

Vocab7

representative money: money that is backed by an item of value, such as gold or silver

Vocab8

fiat money: money that has value because a government fiat, or order, has established it as acceptable for payment of debts

Vocab9

legal tender: money that by law must be accepted for payment of public and private debts

Vocab10

overdraft checking: checking account that allows a customer to write a check for more money than exists in his or her account

Vocab11

electronic funds transfer (EFT): system of transferring funds from one bank account directly to another without any paper money changing hands

Vocab12

automated teller machine (ATM): unit that allows consumers to do their banking without the help of a teller

Vocab13

checking account: account in which deposited funds can be withdrawn at any time by writing a check

Vocab14

checkable deposits: funds deposited in a bank that can be withdrawn at any time by presenting a check

Vocab15

thrift institutions: mutual savings banks, S&Ls, and credit unions that offer many of the same services as commercial banks

Vocab16

debit card: device used to make cashless purchases; money is electronically withdrawn from the consumer’s checkable account and transferred directly to the store’s bank account

Vocab17

near moneys: assets, such as savings accounts, that can be turned into money relatively easily and without the risk of loss of value

Vocab18

M1: narrowest definition of the money supply; consists of moneys that can be spent immediately and against which checks can be written

Vocab19

M2: broader definition of the money supply; includes all of M1, plus such near moneys as savings deposits, small denomination time deposits, money market deposit accounts, and retail money market mutual fund balances

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