Econ Chapter 10

In what ways does the federal government act to safeguard the money of individual citizens

1. FDIC (Federal Deposit Insurance Company) 2. Reserve Requirements 3. Holds amount of money in circulation to maintain the value of money

How long did the first national bank last?

1791-1811

Federal Reserve

Central Bank of the United States

Savings and Loans

Developed for private citizens, state chartered, personal, place to save your money and get a mortgage for a house

Properties of Money

Durability, Portability, Divisibility, Uniformity

FDIC

Federal Deposit Insurance Company; Insures the banks money and in turn insures your money

From 1836 to 1863, there was no national oversight of banking. What was the result?

Financial panics and economic instability

What does expanding the money supply do?

Increasing circulation of money going to businesses that leads to higher employment rates and investments increase. Most often done when Job market is low.

Banking Deregulation

Massive Deregulation in the 80s and 90s that led to major changes in the industry

NCUA

National Credit Union Association; protected by an association as opposed to the government

Credit Unions

Non Profit, Membership Bank, money made is reinvested into members, protected by the NCUA, smaller than commercial banks

What does the contracting of the money supply do?

Occurs during inflation, money is devalued, money supply in ccirculation is decreased, investments decrease

Commercial Bank

Originated as Banks for Business but opened their doors to the average investor; goal is to make money

What are the advantages and disadvantages of electronic banking

Pros: Convenience, accessibility, easier Con: Identity Theft

Discount Rate

Rate the Fed charges on loans to banks

RRR

Required Reserve Ratio; fraction of the bank's deposits that must be kept in reserve to control the amount the bank can loan out

What makes money valuable?

Scarcity

When might the fed increase cash?

Special times or places (ex. Holiday season)

What is a security?

Stocks and Bonds

What does the Federal Reserve do?

Takes actions that change the money supply in order to influence the economy

What are open market operations?

The selling and purchasing of government securities

What is the purpose of the Federal Reserve?

To curb inflamation or reduce stagnation or recession

What is the purpose of the federal reserve system?

To make loans to banks, issue currency, and regulate the money supply

Safety Deposit Box

Vault, put money/jewlery/valuables for safe keeping; protected by law

When does the Reserve Requirement and discount rate increase?

When the money supply contracts

When does the Reserve Requirement and discount rate decrease

When the money supply expands

State Bank

a bank the state has either licsensed or chartered

medium of exchange

a means through which goods and services can be exchanged

What did the national banking act of 1863 set up?

a system of national banks and national currency

money

anything that people will accept in exchange for goods and services

A major result of bank deregulation in the 1980s and 1990s was hundreds of

bank mergers

The difference between credit cards and debit cards is that

credit cards are loans, while debit cards are withdrawls of existing funds

Automatic Teller Machines (ATMs) let customers

deposit and withdraw funds at locations other than the bank

commodity money

money that has intrinsic value based on the material from which it is made (ex. gold, brass, silver)

representative money

money that is backed by something tangible

fiat money

money that is declared by the government to have worth

currency

paper money and coins

What purpose was the first national bank of the United States created?

promote financial policies that favored merchants over farmers

A mortgage allows a consumer to

purchase a house without paying the whole value up front

near money

savings accounts and time deposits that can be converted into cash relatively easily

store of value

something that holds its economic worth over time

Wildcat Banking

state banks, little regulation, multiple currencies

Barter

the exchange of goods and services without using money

the term electronic banking generally refers to the use of

the internet and computers to do bank transactions at home

standard of value

the measurement of economic worth in the exchange process

The two original purposes of savings and loans were

to take savings deposits and provide home mortgage loans