ECONOMICS 2nd Semester 2022

American Division
Grade 12
Economics
2nd Semester
Chapter 1
Money and Banking
Enduring understanding
Money makes it easier to trade, borrow, save, invest and compare the value
of goods and services.
Essential Question
How has money evolved to meet the needs of people everywhere?
How did the creation of the fed improve our banking system?
How has technology affected the way we use money today?
You will know:

The basic functions and characteristics of money
The Role of banks and other financial institutions in the economy of the
United States.
You will be able to:

Compare the characteristics of modern money with the basic characteristics
of all money
Evaluate bank services to determine which bank would work best for them
individually.
Search for the following questions then explore the answers with discussion
-What advantages does the use of money have over the barter system?
-How does fiat money different from commodity money?
-What are the four main characteristics of money?
-How does the US dollar perform the three essential functions of money?
How has money evolved to meet the needs of people everywhere?

Money is not just something you spend .It like a tool or a device that serves
everyone best interest .Money has been developed by different societies at
different times all over the world. The need for money has become as
accepted as the need for laws and government.
Think about how people pay for their purchases
What are some different payment methods?

Are these also forms of money? Explain
What is the connection between Federal Reserve notes and other payment
methods?
Critical Thinking skills
Discussing currency: What kinds of money do you know about?
( Dollars , Canadian dollars ,Euros , and so on ) point out that although most
purchases are completed using alternative methods of pavements , such as
credit cards and electronic transfers ,The measure of value is still in familiar
dollars or similar currency .
Content vocabulary
Federal Reserve System
Federal Reserve notes
Barter economy
Commodity money
The evolution of Money

Take a moment to think what life would be like 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 easy to divide for payment.
For example how could a milkman with a pail of milk obtain a pair of shoes if
the cobbler wanted a basket of fish? 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.
Life is simpler in an economy with money .the milkman sells the milk for cash
and then exchanges that cash for a pair of shoes .The cobbler takes the cash
and looks for someone selling fish .Money ,as it turns out ,makes life easier
for everybody in ways we may have never considered.
Money in colonial America
The money used by early settlers in the American colonies was similar to that
found in early societies. Some of it consisted of commodity money –money
that has an alternative use as an economic good, or commodity .Many
products including corn, hemp, and gunpowder and musket balls –served as
commodity money. They could be used to settle debts and make purchases.
At the same time, colonists could consume these products, if necessary.
Commonly accepted commodity money was tobacco, for which the Governor
of colonial Virginia set a value of three English shillings per pound in 1618
two years later, the colonists used some of this commodity money to bring
wives to the colonies.
Other colonies established fiat money –money by government decree .For
example, in 1637, Massachusetts established a monetary value for wampum
–a form of currency the Wampanoag Native Americans made out of white
and purple mussel shells. The Wampanoag and the settlers used these shells
in trade .White shells were more plentiful than purple ones, so one English
penny was made equal to six white or three purple shells .The colonial
settlers could even pay their taxes with wampum .
Early paper currency
Paper currency was another popular form of fiat money in the colonies .some
state laws allowed individuals to print their own paper currency if they
promised to redeem the currency for gold and silver .some states even
printed money in the form of tax anticipation notes and used them to pay
salaries, buy supplies and meet other government expenditure until they
received taxes and could redeem the notes.
Explain the following questions
- What are some different payment methods?

- Are these also forms of money? Explain
- What is the connection between Federal Reserve notes and other payment
methods?
- What advantages does the use of money have over the barter system?
The continental congress issued paper money to finance the Revolutionary

war. In 1775 it printed continental dollars, a form of fiat currency with no
gold or silver backing .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.
Specie in the colonies
Colonists also used modest amounts of specie or money in the form of silver
or gold coins .These included English shillings, Austrian talers, and various
European coins that immigrants brought to the colonies .coins were the most
desirable form of money, not only because of their mineral content, but
because they were in limited supply .By 1776 only $12 million in specie
circulated in the colonies, compared to nearly $500 million in paper currency.
The most popular coin in the colonies was the Spanish peso, which came to
America through trade and piracy .long before the American Revolution had
begun, the Spanish were mining silver in México. They melted silver into
bullion –ingots or bars of precious metals or minted it into coins for shipment
to Spain. When the Spanish treasure ships left the West Indies on their way
to Spain, they often became victims of Caribbean pirates who spent their
stolen treasure in America’s southern ports. The “triangular trade “among
the colonies, Africa and the Caribbean brought more pesos to America.
Traders took molasses to be made into rum and spent their pesos on other
goods .The rum was shipped to Africa where it was traded for enslaved
Africans .The enslaved Africans were taken to the Caribbean to be sold for
pesos and more molasses or to be shipped to the colonies .The trade cycle
started a new when molasses and pesos were taken to the colonies.
From Talers to Dollars
Spanish pesos were known as pieces of eight because they were divided into
eight subparts known as “bits” .Because the pesos resembled the Austrian
talers, they were nicknamed , Which in German sounded exactly like the
word dollars .This term became so popular that the dollar became the basic
monetary unit or standard unit of currency, in the U.S money system.
The Development of Modern Banking
Exercise 1 A
Q1 Choose the correct answer:
1. Barter cannot function well
(a) Because goods are not always divisible.
(b) Because transaction costs are minimal.
(c) Because goods are always standardized
. 2. Money
(a) Is a flow variable.
(b) Includes checkable deposits with banks.
(c) Includes gold and silver.
3. Price of money
(a) Does not exist because it is not a good that one can purchase from the
market.
(b) At best can be the inflation rate.
(c) Is best measured in terms of opportunity cost of holding money.
4. Paper currency is known as ‘fiat money’
(a) Because only a fraction of total currency is in coins.
(b) Because it is decreed legal tender.
(c) Because it cannot be used as payment for debts.

5. Near-Money
(a) Is as liquid as currency.
(b) Can be used as a medium of exchange.
(c) Serves only store of value function of money
6. Zero coupon bond is a
(a) Discount bond.
(b) Coupon bond.
(c) None of the above.
7. A console
(a) Is sold at a discount.
(b) Does not specify maturity period.
8. Return on a bond
(a) Is yield to maturity of the bond?
(b) Is coupon payment of the bond?
(c) Depends upon current price of the bond.

9. Yield to maturity
(a) Is current price of a bond?
(b) Is coupon payment of a bond?
(c) Is related to price of a bond.
10. Indexed bonds
(a) Carry fixed interest payments.
(b) Adjust coupon rates to changes in general price level.
(c) Adjust face values to changes in general price level.
11) ‘Public’ in monetary aggregates
(a) Implies government.
(b) Does not include nonbanks.
(c) Excludes banks.
12. ‘Banks’ in monetary aggregates
(a) Include co-operative banks.
(b) Include only commercial banks.
(c) Do not include the RRBs.

13. Bankers’ Deposits with the RBI
(A) are included in monetary base.
(b) Are excluded from monetary base
(c) Are included in narrow money.
14. ‘Other Deposits with the RBI’
(a) Are a substantial portion of our monetary base?
(b) Are due to banks’ CRR obligation.
15. Currency in Circulation is a part of
(a) M0.
(b) M1.
(c) M3.
16. The difference between M2 and M4 is
(A) due to exclusion (inclusion) of total Post Office Savings Bank Deposits.
(b) Due to exclusion (inclusion) of Post Office Savings Bank Time Deposits.
(C) due to exclusion (inclusion) of Post Office Savings Bank Demand Deposit
Q2 Explain the following questions
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Q3
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Chapter 2
Financial Markets
STUDY GUIDE
Review chapter
Exercise 2 A
Q1 Choose the correct Answer:
1. Barter cannot function well
(a) Because goods are not always divisible.
(b) Because transaction costs are minimal.
(c) Because goods are always standardized
. 2. Money
(a) Is a flow variable.
(b) Includes checkable deposits with banks.
(c) Includes gold and silver.
3. Price of money
(a) Does not exist because it is not a good that one can purchase from the
market.
(b) At best can be the inflation rate.
(c) Is best measured in terms of opportunity cost of holding money.
4. Paper currency is known as ‘fiat money’
(a) Because only a fraction of total currency is in coins.
(b) Because it is decreed legal tender.
(c) Because it cannot be used as payment for debts.

5. Near-Money
(a) Discount bond.
(b) Coupon bond.
7. A console
8. Return on a bond

10. Indexed bonds
(c) Excludes banks.

(a) M0.
(b) M1.
(c) M3.
16. The difference between M2 and M4 is
17. MO is primarily driven by
(a) Bankers’ Deposits with the RBI.
(b) Currency in Circulation.
(c) Other Deposits with the RBI.
18. Variance of growth among M1, M3 and M0
(a) Is the lowest for M1?
(b) Is the lowest for M3?
(c) Is the lowest for M0?
19. despite recession
(a) Share of Time Deposits in M3 has been increasing.
(b) Shares of Demand Deposits and Currency in M3 have been increasing.
20. One of the purposes behind formation of the three new monetary
aggregates
(a) Is to separate Demand Deposits from other deposits.
(b) Is to separate very long term Time Deposits from other Time Deposits.
(c) Is to consider residents and non-residents together.

21. Velocity of money
(a) Changes very slowly according to Fisher
. (b) Does not change according to some Cambridge economists.
(c) Is increasing over time in India.
22. One among the following is not a ‘source’ of monetary base in India.
(a) Bank reserves
(b) Net RBI Credit to Governments
(c) RBI’s Net Foreign Exchange Assets
Q2 Explain the following questions
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methods?
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Q3
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-How do we determine social and economic well being ?
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-How do population trend impact the economy?
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-what are the causes and consequences of instability in the economy ?
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-Discuss the distribution of income in the united states of America ?
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1) the most dominating ‘source’ of monetary base in India has been
(a) Net RBI Credit to Governments.
(b) Net Foreign Exchange Assets of the RBI.
(c) Bank reserves.
2. ‘Complex’ money multiplier in India
(a) Has increased in the new century.
(b) Has decreased in the new century.
(c) Seems to fluctuate widely over time.
3. If time deposit to demand deposit ratio increases
(a) The complex multiplier increases.
(b) The simple multiplier decreases.
(c) Both the multipliers will shrink.
4) DFHI
(a) Is a Non-intermediary financial institution.
(b) Is a capital market institution.
(c) Is a primary dealer.

5). Non-Banking Statutory Financial Organisations (NBSFO)
(a) Are Regulatory institutions.
(b) Are other money market institutions
. (c) Are Non-intermediary financial institutions.
6) UTI
(b) Is an Intermediary financial institution.
(c) Is a Regulatory institution.
7) Call money
(a) Is borrowed by Non-banks from banks
. (B) is unavailable in unorganized money market.
(c) Is primarily lent by commercial banks.
8. Commercial Papers
(a) Are sold by the banks for short term purposes.
(b) Are like coupon bonds which carry a fixed interest payment.
(c) Can develop a secondary market

11. Near-Money
(a) Discount bond.
(b) Coupon bond.

13. A console
14. Return on a bond
16. Indexed bonds

(c) Excludes banks.

(a) M0.
(b) M1.
(c) M3.
22 The difference between M2 and M4 is

26. One of the purposes behind formation of the three new monetary
aggregates
(a) Is to separate Demand Deposits from other deposits.
(b) Is to separate very long term Time Deposits from other Time Deposits.
(c) Is to consider residents and non-residents together.
28 Variance of growth among M1, M3 and M0

1. Gilt-edged market
(a) Deals with industrial securities.
(b) Is a risk free market.
(C) is also known as stock market.
2. Presently, participants in the call market
(a) Include some NBFIs.
(b) Borrow and lend at fixed rates.
(c) Also include primary dealers.
3. CPs
(a) Were launched in the Indian money market before CDs.
(b) Are issued by scheduled commercial banks.
(c) Can be bought by banks as well.
4. CPs
(a) Have a minimum issue size of Rest 5 lakhs.
(b) Have a minimum maturity of 7 days.
(c) Have a lock-in period.

(c) None of the above
8) the most dominating ‘source’ of monetary base in India has been
(a) Net RBI Credit to Governments.
(b) Net Foreign Exchange Assets of the RBI.
(c) Bank reserves.

9. ‘Complex’ money multiplier in India
(a) Has increased in the new century.
(b) Has decreased in the new century.
(c) Seems to fluctuate widely over time.
10. If time deposit to demand deposit ratio increases
(a) The complex multiplier increases.
(b) The simple multiplier decreases.
(c) Both the multipliers will shrink.
11) DFHI
(b) Is a capital market institution.
(c) Is a primary dealer.
12). Non-Banking Statutory Financial Organisations (NBSFO)
(a) Are Regulatory institutions.
(b) Are other money market institutions
. (c) Are Non-intermediary financial institutions.

13) UTI
(b) Is an Intermediary financial institution.
(c) Is a Regulatory institution.
14) Call money
(a) Is borrowed by Non-banks from banks
. (B) is unavailable in unorganized money market.
(c) Is primarily lent by commercial banks.
15. Commercial Papers
(a) Are sold by the banks for short term purposes.
(b) Are like coupon bonds which carry a fixed interest payment.
(c) Can develop a secondary market

18. Near-Money

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American Division

You will know:

You will be able to:

How has money evolved to meet the needs of people everywhere?

What are some different payment methods?

The evolution of Money

Early paper currency

- What are some different payment methods?

The continental congress issued paper money to finance the Revolutionary

Specie in the colonies

From Talers to Dollars

1. Barter cannot function well

(a) Because goods are not always divisible.

(b) Because transaction costs are minimal.

(c) Because goods are always standardized

(a) Is a flow variable.

(b) Includes checkable deposits with banks.

(c) Includes gold and silver.

(b) At best can be the inflation rate.

(c) Is best measured in terms of opportunity cost of holding money.

4. Paper currency is known as ‘fiat money’

(a) Because only a fraction of total currency is in coins.

(b) Because it is decreed legal tender.

(c) Because it cannot be used as payment for debts.

(a) Is as liquid as currency.

(b) Can be used as a medium of exchange.

(c) Serves only store of value function of money

6. Zero coupon bond is a

(a) Discount bond.

(b) Coupon bond.

(c) None of the above.

(a) Is sold at a discount.

(b) Does not specify maturity period.

(c) None of the above.

(a) Is yield to maturity of the bond?

(b) Is coupon payment of the bond?

(c) Depends upon current price of the bond.

(a) Is current price of a bond?

(b) Is coupon payment of a bond?

(c) Is related to price of a bond.

10. Indexed bonds

(a) Carry fixed interest payments.

(b) Adjust coupon rates to changes in general price level.

(c) Adjust face values to changes in general price level.

11) ‘Public’ in monetary aggregates

(a) Implies government.

(b) Does not include nonbanks.

(c) Excludes banks.

12. ‘Banks’ in monetary aggregates

(a) Include co-operative banks.

(b) Include only commercial banks.

(c) Do not include the RRBs.

(A) are included in monetary base.

(b) Are excluded from monetary base

(c) Are included in narrow money.

14. ‘Other Deposits with the RBI’

(a) Are a substantial portion of our monetary base?

(b) Are due to banks’ CRR obligation.

(c) None of the above.

15. Currency in Circulation is a part of

16. The difference between M2 and M4 is

- What are some different payment methods?

- Are these also forms of money? Explain