Download Bellringer

Bellringer
• The United States government has decided to issue
federal income tax rebates to taxpayers. What is the
MOST LIKELY goal of these rebates?
A)
B)
C)
D)
Increased consumer spending
Increased transfer payments
Reduction in the unemployment rate
Reduction in the military budget
Money and Banking
Functions of Money
1. Medium of exchange
– Money can be used for buying and selling goods and
services (v. bartering)
– Any item that sellers accept as payment for g/s is
money
2. Unit of account/standard of value
– Prices are quoted in dollars and cents  provides us
with a way to measure the relative value of g/s
– helps to clarify opportunity costs (you know better what
you are giving up v. what you are receiving)
– record-keeping, profits/losses.
Functions of Money
3. Store of value
– Money allows us to transfer purchasing power from
present to future.
– It is the most liquid (spendable) of all assets
– a convenient way to store wealth
– must be imperishable and keep value over time
Characteristics of Money
1. Durability
– ability to last, withstand wear and tear
2. Portability
– ability to be carried as well as transferred to another
3. Divisibility
– ability to be divided into smaller units (waste of resources
4. Stability in Value
– encourages saving, maintains purchase power
5. Acceptability
– people will accept in exchange for g/s
Types/Categories of Money
1. Commodity Money
– item that has value of its own
– e.g., gold, gems, etc.
2. Representative Money
– has value b/c it can be exchanged for something else of
value
– e.g., bills of credit backed by specie
3. Fiat Money
– gov’t decree says it has value (paper money)
– “backed by the good faith and credit”
of the U.S. gov’t
REVIEW
• Which of the following best illustrates the unit of
account function of money?
A) You list prices for candy sold on your Web site,
www.sweettooth.com, in dollars.
B) You pay for your NBA tickets with dollars.
C) You keep $10 in your backpack for emergencies.
D)None of the above is correct.
REVIEW
• Which of the following best illustrates the medium of
exchange function of money?
A) You keep some money hidden in your shoe.
B) You keep track of the value of your assets in terms of
currency.
C) You pay for your double latte using currency.
D)None of the above is correct.
REVIEW
• Commodity money is
A) backed by gold.
B) the principal type of money in use today.
C) money with intrinsic value.
D)receipts created in international trade that are used as
a medium of exchange.
REVIEW
• Fiat money
A) is worthless.
B) has no intrinsic value.
C) may be used as a medium of exchange, but is not legal
tender.
D)performs all the functions of money except providing a
unit of account.
The Money Supply
• The money supply (or money stock):
the quantity of money available in the economy
• What assets should be considered part of the
money supply? Two candidates:
– Currency: the paper bills and coins in the hands of the (nonbank) public
– Demand deposits: balances in bank accounts that depositors
can access on demand by writing a check
http://www.mundanebehavior.org/images/images-v2n2/diggs-atm
http://www.globalmortgage.com/images/ROLLOVERS/cash.jpg
http://www.crk.umn.edu/academics/Acct/CHECKS.gif
http://lfd.uiuc.edu/misc/visitors/coins.jpg
jpghttp://www.nassauboatcharters.com/travelerscheck
Cash
Coins
Checks Travelers’
Checks
http://www.cpaofc.com/images/mutualfunds.gif
http://www.catlinbank.com/images/acct/WG-PASSBOOK.gif
http://www.pinnbank.com/gifs/photo_moneymarket.gif
http://www.historyteacher.net/images/EuroDollar.JP
Savings Money
Accounts Market
Mutual Overnight
Euro $
Funds
=
http://www.fnbi.com/media/special_CD_rate/special_CD_offer_03_1.gif
Large Deposits of Large institutional
CD’s $100,000 or money market
more
accounts
Measures of the U.S. Money Supply
• M1: currency, demand deposits,
traveler’s checks, and other checkable deposits.
M1 = $2.2 trillion (January 2012)
• M2: everything in M1 plus savings deposits,
small time deposits, money market mutual funds, and a
few minor categories.
M2 = $9.7 trillion (January 2012)
The distinction between M1 and M2
will often not matter when we talk about
“the money supply” in this course.
NOTE:
• Credit cards are not money, but their use involves
short-term loans
• Their convenience allows you to keep M1 balances low
because you need less for daily purchases.
REVIEW
• Which of the following is not included in M1?
A) currency
B) demand deposits
C) savings deposits
D)travelers' checks
REVIEW
• Which of the following is included in the M2 definition
of the money supply?
A) credit cards
B) money market mutual funds
C) corporate bonds
D)large time deposits
What “backs” the money supply?
• The government’s ability to keep its value stable provides
the backing.
• Value of money arises not from its intrinsic value, but its
value in exchange for goods and services.
– It is acceptable as a medium of exchange.
– Currency is legal tender or fiat money. It must be accepted by
law. (Note that checks are not legal tender but, in fact, are
generally acceptable in exchange for goods, services, and
resources.)
• The relative scarcity of money compared to goods and
services will allow money to retain its purchasing power.
What “backs” the money supply?
• Money’s purchasing power determines its value. Higher
prices mean less purchasing power.
• Excessive inflation may make money worthless and
unacceptable.
– Worthless money leads to use of other currencies that are more
stable.
– May lead to barter exchange system.
• Maintaining the value of money
– The government tries to keep supply stable with appropriate fiscal
policy.
– Monetary policy tries to keep money relatively scarce to maintain
its purchasing power, while expanding enough to allow the
economy to grow.
What “backs” the money supply?
• What about gold—didn’t it used to give money its
value?
– NO!!! This is a misnomer propagated by ignorant
history teachers
– Gold never gave value to money, instead it forced the
gov’t to only print a fixed amount of money due to the
limited amount of gold
– As we know, printing more money causes the value of
money to decline. If the gov’t can’t just print more
money, it can’t cause inflation or the devaluation of the
currency
Video
• Next, we will watch “A World of Money” and you will
complete the video guide
TOTD
• Finally, for your TOTD you will read Ch. 13.2 and
13.3, take notes, and answer Section Review questions
#2 & #3
Transitional Page
Template Provided By
www.animationfactory.com
500,000 Downloadable PowerPoint Templates, Animated
Clip Art, Backgrounds and Videos