econ chapter 10 & 11

Define national bank

A privately owned bank that receives its operating charter from the government National bank is a commercial bank chartered by the National Banking System

Identify and explain the gold standard

A system in which the basic unit of currency is equivalent to and could exchanged for a specific amount of gold The gold standard is a system in which the basic unit of currency is equivalent to, and can be exchanged for, a specific amount of gold

Describe how the value of the dollar impacts the price of foreign goods. (look on page 279)

Americans spend more money than they take in. to cover the deficit, the government sell bonds. Now the American dollar is worth less than foreign currencies. Because of this, the prices of our exports are higher and more competitively priced for sale in Europe. Boosts our exports and reduces imports

Why were coins popular in early America?

Coins were the most desirable form of money, not only because of their mineral content, but because they were in limited supply.

Describe currency in early America.

Each bank issued its own currency in different sizes, colors, and denominations Baking was virtually unregulated. During the Revolutionary War, nearly 250 million Continental dollars were printed. Article 1 Section 8 and Section 10 made the federal government to not be able to print paper currency until the Civil War.

What were the problems with currency issued by state banks?

Each bank issued its own currency in different sizes, colors, and denominations, banks were also tempted to issue too many notes because they could print more money than they wanted, counterfeiting

What banking reform was passed by Congress in 1913?

Federal Reserve System, now often called 'Fed' as the nation's central bank

Describe the functions of the OCC (office of the currency). See biography page 280

Formed to Regulate the national banking system. Today they supervise ⅔ of all commercial banking assets

Define gold certificate

Gold certificates are paper currency backed by gold; issued in 1863 and popular until recalled in 1934

What were greenbacks and why were they issued?

Greenbacks were money issued by the government. They were issued because they couldn't fund the war through war bonds

What are the disadvantages of the gold standard?

If gold is scarce, the growth of the money supply may slow, and stop limit economic growth. Also many people may decide to convert currency at the same time

Define legal render

Legal Tener is currency that must be accepted for payment by decree of government

Identify and explain the three functions of money

Medium of exchange- money or other substance generally accepted as payment for the goods and services Measure of value- money serves as a measuring stick used to express the worth of something that everyone understands. Store of value- allows people to save it and use it later

Define fiat money and explain why it has value?

Money by government decree; has no alternative value or use as a commodity Fiat money is money by government decree with no alternative value or use as a commodity. The government decides how much the money is worth. Paper currency was a popular form of fiat money.

Define specie

Money in the form of gold or silver coins

Identify and explain the four characteristics of money

Money must be portable, or easily transferred from one person to another, to make the exchange of money for products easier. Money must also be reasonably durable so it does not deteriorate when it is handled Money should be easily divisible into smaller units so that people can use only as much as they need for a transaction Money must be available, but only in limited supply

Define commodity money, explain how it is used, and give examples.

Money that has an alternative use as an economic good; gunpowder, flour, and corn Commodity money is money that has an alternative use as an economic good. Like corn, hemp, gunpowder, musket balls, or tobacco. Commodity goods could be used to settle debts and make purchases

Define and explain a barter economy?

Moneyless economy that relies on trade or barter In a barter economy (a moneyless economy that relies on trade), the exchange of goods and services would be more difficult because the products some people have to offer are not always acceptable to others, or equal in payment. For example, how would a milkman trade for a pair of shoes, if the person selling the shoes does not need milk

Define national currency

National Currency is currency backed by government bonds and issued by commercial banks in the National Banking System

Why was paper money issued by the Continental Congress virtually worthless by the end of the war?

Nearly one-quarter billion Continental dollars had been printed- a volume so large that it was virtually worthless by the end of the revolution.

Define Federal Reserve note

Paper currency issued by the Fed that eventually replaced all other types of federal currency; the most visible part of our money supply

What are the advantages of the gold standard?

People may feel more secure about their currency and is supposed to prevent the government from creating too much money since gold is a limited resource

Identify and explain the four characteristics of modern money

Portability (easy to move from one person to the next) Durability (doesn't deteriorate when it is passed along) Divisibility (so people can use the correct amount for a transaction) Scarcity (government monitors and controls the size of the money supply)

Describe the currency issued by a state bank

Printing their notes at a local printing shop - exchange them for gold and silver if they lost faith in the bank or its currency

Identify the federal reserve system (Fed) and its responsibilities?

Privately owned, publicly controlled, central bank of the U.S.; they issue paper currency known as Federal Reserve note

Define silver certificate

Silver Certificates are paper currency backed by, and redeemable for silver from 1878-1968

Define monetary unit and give examples

Standard unit of currency in a country's money supply; American dollar, British pound, and dollars

Why did the United States move to a national banking system?

They wanted people to to regain confidence in the new banking system and ts currency

What problems do people in a barter economy face?

Unless there is a "mutual coincidence of wants"- a situation in which two people want exactly what the other has and are willing to trade what they have for it- it is difficult for trade to take place.

Define a state bank

a Bank that receives its charter from the state in which it operates

Describe demand deposit accounts (DDA)

account whose funds can be removed from a bank or other financial institution by writing a check or using a debit card

Define M2 as a measure of the money

broad definition of money supply conforming to money's role as a medium exchange and a store of value; components include M1 plus savings deposits, time deposits, and money market funds

Define M1 as a measure of the money supply

narrow definition of money supply conforming to money's role as medium of exchange; components include coins, currency, checks, other demand deposits, traveler's checks