Banks are among the oldest businesses in American historythe Bank of New York, for example, was founded in 1784, and as the recently renamed Bank of New York Mellon it had its 225th anniversary in 2009. The banking system is one of the oldest, largest, and most important of our industries. Most adult Americans deal with banks, often on a fairly regular basis. Nonetheless, banks and banking seem rather mysterious. What do banks do? Why have they for so long been an integral part of our economy? Why, as in the financial crisis that commenced in 2007, do banks every so often get into trouble and create serious problems for the country?

Banks have two important economic functions. First, they operate a payments system, and a modern economy cannot function well without an efficient payments system. We make most of our payments by writing checks, swiping credit cards issued by banks or tied to them, and by paying bills via online banking. Most of the money stock of the country is in fact bank money; the rest of the currency is "legal tender" issued by the government, namely Federal Reserve Notes and coins. We have confidence in bank money because we can exchange it at the bank or an ATM for legal tender. Banks are obligated to hold reserves of legal tender to make these exchanges when we request them.

The second key function of banks is financial intermediation, lending or investing the money we deposit with them or credit they themselves create to business enterprises, households, and governments. This is the business side of banking. Most banks are profit-seeking corporations with stockholders who provide the equity capital needed to start and maintain a banking business. Banks make their profits and cover their expenses by charging borrowers more for loans than they pay depositors for keeping money in the bank. The intermediation function of banks is extremely important because it helped to finance the many generations of entrepreneurs who built the American economy as well as the ordinary businesses that keep it going from year to year. But it is inherently a risky business. Will the borrower pay back the loan with interest? What if the borrower doesn't repay the loan? What happens to the banking system and the economy if a large number of borrowers can't or won't repay their loans? And what happens if, in the pursuit of profit, banks do not maintain levels of reserves and capital consistent with their own stability?

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There were no modern banks in colonial America. Colonial Americans gave credit to each other, or relied on credit from merchants and banks in Great Britain. Money consisted of foreign coins and paper money issued by the governments of each colony.

There were no American banks as late as 1781, when young Alexander Hamilton, who would become the most financially astute of the founding fathers, wrote to Robert Morris, Congress's superintendent of finance, that "Most commercial nations have found it necessary to institute banks and they have proved to be the happiest engines that ever were invented for advancing trade." Hamilton recommended that a bank be founded, and a few months later Morris persuaded Congress to charter the new nation's first bank, the Bank of North America located in Philadelphia. Three years later, Boston merchants founded the Massachusetts Bank and Hamilton became a founder of the Bank of New York. When George Washington became our first president under the Constitution in 1789, these were the only three banks in the United States. They were local institutions, not part of a bankingsystemin which banks routinely receive and pay out one another's liabilities.

Washington tapped Hamilton to be our first secretary of the treasury. In his first two years in office Hamilton moved quickly, and often controversially, to give the United States a modern financial system. He implemented the federal revenue system, using its proceeds to restructure and fund the national debt into Treasury securities paying interest quarterly. He defined the US dollar in terms of gold and silver coins; these would serve as reserves backing bank money as banks proliferated. And Hamilton founded a national bank, the Bank of the United States (BUS), a large corporation capitalized at $10million, with 20percent of its shares owned by the federal government and with the power to open branch banks in US cities.Banks are among the oldest businesses in American historythe Bank of New York, for example, was founded in 1784, and as the recently renamed Bank of New York Mellon it had its 225th anniversary in 2009. The banking system is one of the oldest, largest, and most important of our industries. Most adult Americans deal with banks, often on a fairly regular basis. Nonetheless, banks and banking seem rather mysterious. What do banks do? Why have they for so long been an integral part of our economy? Why, as in the financial crisis that commenced in 2007, do banks every so often get into trouble and create serious problems for the country?

Banks have two important economic functions. First, they operate a payments system, and a modern economy cannot function well without an efficient payments system. We make most of our payments by writing checks, swiping credit cards issued by banks or tied to them, and by paying bills via online banking. Most of the money stock of the country is in fact bank money; the rest of the currency is "legal tender" issued by the government, namely Federal Reserve Notes and coins. We have confidence in bank money because we can exchange it at the bank or an ATM for legal tender. Banks are obligated to hold reserves of legal tender to make these exchanges when we request them.

The second key function of banks is financial intermediation, lending or investing the money we deposit with them or credit they themselves create to business enterprises, households, and governments. This is the business side of banking. Most banks are profit-seeking corporations with stockholders who provide the equity capital needed to start and maintain a banking business. Banks make their profits and cover their expenses by charging borrowers more for loans than they pay depositors for keeping money in the bank. The intermediation function of banks is extremely important because it helped to finance the many generations of entrepreneurs who built the American economy as well as the ordinary businesses that keep it going from year to year. But it is inherently a risky business. Will the borrower pay back the loan with interest? What if the borrower doesn't repay the loan? What happens to the banking system and the economy if a large number of borrowers can't or won't repay their loans? And what happens if, in the pursuit of profit, banks do not maintain levels of reserves and capital consistent with their own stability?

******

There were no modern banks in colonial America. Colonial Americans gave credit to each other, or relied on credit from merchants and banks in Great Britain. Money consisted of foreign coins and paper money issued by the governments of each colony.

There were no American banks as late as 1781, when young Alexander Hamilton, who would become the most financially astute of the founding fathers, wrote to Robert Morris, Congress's superintendent of finance, that "Most commercial nations have found it necessary to institute banks and they have proved to be the happiest engines that ever were invented for advancing trade." Hamilton recommended that a bank be founded, and a few months later Morris persuaded Congress to charter the new nation's first bank, the Bank of North America located in Philadelphia. Three years later, Boston merchants founded the Massachusetts Bank and Hamilton became a founder of the Bank of New York. When George Washington became our first president under the Constitution in 1789, these were the only three banks in the United States. They were local institutions, not part of a bankingsystemin which banks routinely receive and pay out one another's liabilities.

Washington tapped Hamilton to be our first secretary of the treasury. In his first two years in office Hamilton moved quickly, and often controversially, to give the United States a modern financial system. He implemented the federal revenue system, using its proceeds to restructure and fund the national debt into Treasury securities paying interest quarterly. He defined the US dollar in terms of gold and silver coins; these would serve as reserves backing bank money as banks proliferated. And Hamilton founded a national bank, the Bank of the United States (BUS), a large corporation capitalized at $10million, with 20percent of its shares owned by the federal government and with the power to open branch banks in US cities.

Banks are among the oldest businesses in American historythe Bank of New York, for example, was founded in 1784, and as the recently renamed Bank of New York Mellon it had its 225th anniversary in 2009. The banking system is one of the oldest, largest, and most important of our industries. Most adult Americans deal with banks, often on a fairly regular basis. Nonetheless, banks and banking seem rather mysterious. What do banks do? Why have they for so long been an integral part of our economy? Why, as in the financial crisis that commenced in 2007, do banks every so often get into trouble and create serious problems for the country?

Banks have two important economic functions. First, they operate a payments system, and a modern economy cannot function well without an efficient payments system. We make most of our payments by writing checks, swiping credit cards issued by banks or tied to them, and by paying bills via online banking. Most of the money stock of the country is in fact bank money; the rest of the currency is "legal tender" issued by the government, namely Federal Reserve Notes and coins. We have confidence in bank money because we can exchange it at the bank or an ATM for legal tender. Banks are obligated to hold reserves of legal tender to make these exchanges when we request them.

The second key function of banks is financial intermediation, lending or investing the money we deposit with them or credit they themselves create to business enterprises, households, and governments. This is the business side of banking. Most banks are profit-seeking corporations with stockholders who provide the equity capital needed to start and maintain a banking business. Banks make their profits and cover their expenses by charging borrowers more for loans than they pay depositors for keeping money in the bank. The intermediation function of banks is extremely important because it helped to finance the many generations of entrepreneurs who built the American economy as well as the ordinary businesses that keep it going from year to year. But it is inherently a risky business. Will the borrower pay back the loan with interest? What if the borrower doesn't repay the loan? What happens to the banking system and the economy if a large number of borrowers can't or won't repay their loans? And what happens if, in the pursuit of profit, banks do not maintain levels of reserves and capital consistent with their own stability?

******

There were no modern banks in colonial America. Colonial Americans gave credit to each other, or relied on credit from merchants and banks in Great Britain. Money consisted of foreign coins and paper money issued by the governments of each colony.

There were no American banks as late as 1781, when young Alexander Hamilton, who would become the most financially astute of the founding fathers, wrote to Robert Morris, Congress's superintendent of finance, that "Most commercial nations have found it necessary to institute banks and they have proved to be the happiest engines that ever were invented for advancing trade." Hamilton recommended that a bank be founded, and a few months later Morris persuaded Congress to charter the new nation's first bank, the Bank of North America located in Philadelphia. Three years later, Boston merchants founded the Massachusetts Bank and Hamilton became a founder of the Bank of New York. When George Washington became our first president under the Constitution in 1789, these were the only three banks in the United States. They were local institutions, not part of a bankingsystemin which banks routinely receive and pay out one another's liabilities.

Washington tapped Hamilton to be our first secretary of the treasury. In his first two years in office Hamilton moved quickly, and often controversially, to give the United States a modern financial system. He implemented the federal revenue system, using its proceeds to restructure and fund the national debt into Treasury securities paying interest quarterly. He defined the US dollar in terms of gold and silver coins; these would serve as reserves backing bank money as banks proliferated. And Hamilton founded a national bank, the Bank of the United States (BUS), a large corporation capitalized at $10million, with 20percent of its shares owned by the federal government and with the power to open branch banks in US cities.

Question three

1.Is it true or false that perfect competition involves many sellers of standardized products?

2.On the market with perfect competition

3.Which of the following conditions indicate that a good is produced under perfect competition:

4.. The profit maximization condition for a firm in a market with monopolistic competition is the following (MR is marginal revenue, MC is marginal cost, P is price, ATC is average total cost, TR is total revenue)

5.Which of the following statements about monopoly is true?

6.There are differences between monopolistic and perfect competition regarding

7.Which of the following can be considered as the basic features of public goods

8.Which of the following solutions are not part of the ways of internalizing externalities:

9.. Normally, the natural economy is characterized by

10.Which of the following features define human needs