Transcript Chapter 14 Money, Banking, and Fed

Chapter 14
Money, Banking, and Fed
Section 1
The Evolution, Functions, and
Characteristics of Money
Page 383
The Evolution of Money
• Barter economy – a moneyless economic that
relies on trade.
– In a barter economy, exchange of goods and
services must have a “mutual coincidence of
wants.”
– It is not easy to divide what you have for
payment.
The Evolution of Money
–Money in primitive societies
– Commodity money – money that has an
alternative use as an economic good, or
commodity. (tea bricks)
– Fiat money - Money by government decree
as early as the 7th century BC tiny metallic
coins used in Asia Minor
Money in Colonial America
• Commodity money in America – corn,
hemp, gunpowder, musket balls, and
tobacco
• Fiat Money – Some state laws allowed
individuals to print their own money
paper currency. Usually backed by gold
or silver deposits in banks and use for
currency in the immediate area.
Money in Colonial America
• Colonists also used specie (money in the form of
silver or gold coins) like English shillings, Austrian
talers, and Spanish pesos brought over by
immigrants.
• Pirates and the triangular trade brought lots of
pesos to America.
• Pesos were also know as pieces of eight because
they could be divided into bits. They looked
similar to talers and it became pronounce dollars
and became the basic monetary unit, or standard
unit of currency in the U.S. money system.
Characteristics and Function
of Money
• Characteristics of money
–Portable
–Durable
–Divisible into smaller units
–In limited supply
Characteristics and Function
of Money
• Functions of Money
–Medium of exchange
–Measure of value
–Store of value
Today’s money
–Federal Reserve notes –Metallic coins issued by the
U.S. Bureau of the Mint
–Demand deposit accounts
(DDAs) – your checking
account
The Fed has different definitions for
the money supply.
– M1 – includes coins and currency, traveler’s
checks, DDA’s, and checking accounts held
at other depository institution. (medium of
exchange)
– M2 – is a broader definition which includes
M1 along with savings deposits, time
deposits, and money market funds.(store
of value)