Chapters 10-15-16-18

BARTER ECONOMY: Economic system where goods and services are exchanged instead of money

MONEY: Any good that is widely accepted as final payment for goods and services (think of Mr.Krabs)

Three Types of MONEY:

1. Commodity Money = Money that has an alternative use

2. Representative Money = Something in itself doesn’t have value but can be something exchanged for something of value

3. FAIT Money = Money by government decree

Four Purposes of MONEY:

1. Medium of exchange = Purchase goods & services (BUY STUFF)

2. Store of value = Money can be saved and retrieved later

3. Mesure of value = Money provides a common unit to measure the value of different goods and services

4. Standard of deferred payment = Money enables people to borrow and repay debts at a later date

Five Characteristics of MONEY$:

• Portable

• Acceptable

• Divisible/Durable

• Scarce

The FED (Federal Reserve Banking System):

• what is it? - Central Bank = A bank’s bank, THE FED

Three parts of the FED:

• The Board of Governors: A federal agency in Washington, D.C

• The Federal Reserve Banks: 12 regional banks that operate across the United States

• Member Banks: Consumer banks, "IT OWNS THE FED”

Monetary Policy = Deliberate attempt by the Fed to regulate/stabilize the economy using the tools of the Federal Reserve System (the Fed controls Monetary Policy)

The Federal Reserve Tool’s:

• Reserve Requirement (RR) = Percentage of a bank's deposits that it is legally obligated to hold in reserve

• Discount Rate (DR) = The interest rate a central bank charges commercial banks for short-term loans.

• Open Market Operation (OMO) = A central bank buys or sells government securities in the open market to influence the money supply and manage interest rates.

Scale:

Inflation: Cause - Too much money Fix - Take out money

Recession: Cause - Too little money Fix - Put money in