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MONEY AND BANKING BASIC FUNCTIONS CHARACTERISTICS TYPES OF MONEY HISTORY OF MONEY AND BANKING FUNCTIONS OF MONEY MEDIUM OF EXCHANGEACCEPTED in exchange for a good/service UNIT OF ACCOUNT- measures the VALUES of goods/services STORE OF VALUE- purchasing power of the dollar over TIME CHARACTERISTICS OF MONEY DURABLE PORTABLE DIVISIBLE STABLE IN VALUE SCARCE ACCEPTED TYPES OF MONEY COMMODITY MONEY- an item uses as money that has value as a good aside from being money. Example: cows, gold, diamonds REPRESENTATIVE MONEYmoney that is backed by an item of value. (gold, silver) FIAT MONEY- money that has value because the government says so. (LEGAL TENDER) accepted for payments of public and private debts. FIAT MONEY (LEGAL TENDER) M1- currency, coins, checking accounts, debit cards. (LIQUID) Can be used in exchange for G/S now. M2- savings deposits, time deposits, CD’s, mutual funds, etc (NEAR or BRAOD MONEY) HISTORY OF MONEY AND BANKING P. 382-83 (READ) 14-2 Worksheet VIDEO: MODERN MARVELS: History of American Money MONETARY POLICY The process of the FED changing the SUPPLY of MONEY and the cost of CREDIT. 3 MAJOR TOOLS DISCOUNT RATE: interest rate the FED charges on loans to member banks. (Affects what your bank will charge you in interest) OPEN-MARKET OPERATIONS: the buying and selling of government bonds (securities) RESERVE REQUIREMENTS: the percent amount of cash banks need to keep in their vaults or in deposit in the closest FED Reserve bank. (Fractional Reserve banking) MONETARY POLICY TIGHT MONETARY POLICY: makes credit more expensive and puts money in shorter supply. (slow the economy down) LOOSE MONETARY POLICY: makes credit less expensive and puts more money in supply. (speed the economy up) CHAIRMAN OF THE FED is BEN BERNANKE.