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