Chapter 11 – 12
Monetary Policy
Chapter 11 Section 1
Chapter 12 Sections 1,2, 3
Chapter 11
Section 1
I.

Explain the three
functions of money.
A. Barter Economy –
• Moneyless economy that relies on
trade.

B. Money –
• Any substance that functions as a
medium of exchange, a measure of
value, and a store of value.
3
I.

Explain the three
functions of money.
C. Three functions of money
• 1)
Medium of exchange
• Generally accepted as payment for
goods and services.
• 2) Measure of value
• Expression of worth.
• 3) Store of value
• Goods or services can be converted
into money, which is easily stored until
some future time.
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II. Identify four major types of
money used in early societies.

A. Commodity Money –
• Money that has an alternative use as a
commodity (i.e. corn, gunpowder, tobacco).

B. Wampum –
• Conch and mussel shells used as money by
the Narraganset Native Americans.
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II. Identify four major types of
money used in early societies.

C. Paper Currency –

D. Specie –
• Fiat
• Money by government decree.
• Money in the form of coins.
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III. Trace the origins of the
United States dollar.

A. Pesos –
• Spanish
• Bullion
• Ingots or bars of precious metals

B. Talers –
• Austrian taler
• Monetary unit – standard unit of currency
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IV. Describe the four
characteristics of money.

A. Portability –

B. Durability –
• Transferred from one person to another.
• Able to last a long time.
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IV. Describe the four
characteristics of money.

C. Divisibility –

D. Limited Availability–
• Easily divisible into smaller units.
• Money loses its value when there is too
much of it.
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END
CHAPTER 11
Chapter 12
Section 1
I.



Identify the unique
features of the FED.
A. 12 Districts – Atlanta, GA 6
B. Operate independently of one
another.
C. Private ownership
• 1)
Member banks – banks that belong
to the Federal Reserve System.
• 2) The FED is owned by member banks.
12
13
II. Describe the structure of the
Federal Reserve System.


A. Board of Governors –
• 1)
• 2)
7 members appointed by President.
Regulatory and supervisory agency.
B. Federal Open Market Committee –
• Makes decisions about the money supply
and interest rates.

C. Federal Advisory Council –
• Provides feedback on the overall health of
the economy.
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III. Explain the major regulatory
responsibilities of the FED.

A. State Member Bank Supervision –
• 1)
• 2)

All depository institutions must maintain
reserves.
The FED is responsible for state
chartered member banks.
B. Holding Companies –
• 1)
• 2)
Corporation that owns one or more banks.
Formed to avoid government regulations.
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III. Explain the major regulatory
responsibilities of the FED.


C. International Operations–
• 1)
The FED has broad authority to supervise
and regulate foreign banks operating in the
United States.
D. Mergers –
• 1)
The FED must approve a merger of two or
more banks.
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III. Explain the major regulatory
responsibilities of the FED.


E. Check Clearing –
• 1)
Reserves are shifted from one bank to
another.
F. Consumer Legislation–
• 1)
• 2)
Truth-in lending laws require sellers to
disclose info to people who buy on credit.
Regulation Z is a provision that requires
truth-in lending disclosures.
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III. Explain the major regulatory
responsibilities of the FED.

G. Currency –
• 1)
• 2)

Paper component is printed at the Bureau
of Engraving and Printing.
Metallic coins are coined at the U.S. Mint.
H. Margin Requirement –
• 1)
Minimum deposits left with a stockbroker to
be used as down payments to buy other
securities.
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