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UNIT 4: MONEY, BANKING, AND FINANCECh. 10: Money and Banking
Ch. 11: Financial Markets
CHAPTER 10.1
Bell Work: Grab workbook sheets Complete: Unit 1 Warm-up (88 A-C) (105-6 A-E) Complete Ch. 10 Warm-up (89 A-C)
“How does money serve the needs of our society?”
Objectives 3 Uses of Money 6 Characteristics of Money Sources of money’s values
Key Terms http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-3
69833-5/Flash/Ch10/Econ_OnlineLectureNotes_ch10_s1.swf
CH. 10 INTRODUCTION
How does money serve the needs of our society? Provides means for
comparing values of goods/services
Serves as a store of value
W/out wouldn’t be able to get wants/needs
3 USES OF MONEY Money is anything that can serve as……
Medium of Exchange Unit of Account Store of Value
BARTERING
W/out money, we would acquire goods/services through barter
Still used in many parts of world Only in more traditional economies Too difficult to est. value of bartered goods in a
specialized economy Money makes exchange EASIER
Provides means for comparing value of goods/services
Usually Money can serve as good store of value except in times of inflation
CURRENCY
Coins and paper money Past forms of currency
Cattle, salt, precious stones, fur, dried fish Would not work well today b/c they lack at least
one of six characteristics of Money 6 Characteristics of Money
Durability Portability Divisibility Uniformity Limited Supply Acceptability
DURABILITY/PORTABILITY
Durability Money must be able
to withstand physical wear/tear
Portability Needs to be easily
carried Paper/coins are
small/light
DIVISIBILITY/UNIFORMITY
Divisibility Must be easily
divided into small denominations
Uniformity Must be able to be
counted/measured correctly
LIMITED SUPPLY/ACCEPTABILITY
Limited Supply Would lose value if
unlimited Fed. Reserve
regulated supply of money in circulation
Acceptability Must be accepted by
everyone as exchange for goods/services
SOURCES OF VALUE Commodity Money: Objects of value to society Representative Money: Rep. ownership of value Fiat Money: Govt. says it is acceptable Identify this source
http://www.youtube.com/watch?v=7GSXbgfKFWg
LESSON CLOSING
Frontline Video: The Warning http://www.pbs.org/wgbh/pages/frontline/warning
/view/?utm_campaign=viewpage&utm_medium=grid&utm_source=grid
Complete Workbook Pgs. 90,15
HW/Bell Work for tomorrow Complete S.1 Quiz
10.2 BELL WORKBooks/Folders
Complete S.1 Quiz
10.2
“How has the American banking system changed to meet new challenges?”
Objectives Shifts bt. Centralized/decentralized banking
before Civil War How govt. reforms stabilized banking system in
1800s Developments in early 1900s banking Causes of 2 recent banking crises
Key Terms http://www.pearsonsuccessnet.com/snpapp/iText/product
s/0-13-369833-5/Flash/Ch10/Econ_OnlineLectureNotes_ch10_s2.swf
INTRODUCTION
How has the American banking system changed to meet new challenges? Early people distrusted banks Banks have worked a lot to increase American
Trust American Banking has developed to meet needs
of growing and changing population
BANKING BEFORE CIVIL WAR
Early banks were informal businesses that merchants managed in addition to their regular trade
Post Revolution, nations leaders had idea Est. a safe, stable banking system
Led to tireless disagreement on how to organize nat’l banking system
2 Views Federalists: Wanted centralized banking system
National bank Anti-federalists: Opposed plan
Decentralized banking; owned/regulated by each state
1ST BANK OF US
Federalists won the 1st debate in 1791 Est. Bank of U.S. w/20 year charter for operations Anti-federalists argued bank unconstitutional and
was set up only for wealthy Bank functioned well until 1811 when charter
ran out State banks then took over Led to chaos/confusion
Banks issued notes w/out specie to back it up Banks issued different currencies
2ND BANK OF U.S.
To eliminate chaos, 2nd bank chartered in 1816
Stability greatly restored Many still feared
Banks powers 1832, Congress tried
to renew charter Andrew Jackson
vetoed renewal Led to Free Banking
Era
FREE BANKING ERA
State chartered banks expanded from 1837-63
Large number led to many problems Bank runs/panics
Often not enough gold/silver to back notes issued Led to bank runs: people trying to collect all at same
time Wildcat banks (poorly financed/high rate of
failure) Located in remote places where only “wildcats” lived
Fraud New banks would issue notes for gold/silver then run
off Different currencies
Differing currencies from states/cities led to confusion and more fraudulent imitations
STABILITY OF LATER 1800S
Banking Acts of 1863 and 1864 Gave federal govt. power to:
Charter Banks Require banks to hold adequate amount of gold/silver
reserves Issue a national currency
1870s Nation adopted gold standard
Set a definite value for the dollar 1 oz. gold =$20 Gave public a stable currency and gained public
confidence
BANKING OF EARLY 1900S
Problems persisted despite stabilizing efforts Led to Federal Reserve Act of 1913
Est. Federal Reserve System; reorganizing bank system 12 regional Reserve Banks
All nat’l charted banks required to be members Federal reserve board
People to supervise banks; appt. by president Short-Term Loans
Each regional reserve allowed member banks to borrow to meet short term demands; helped prevent failures in face of panics
Federal Reserve notes Created currency used today, allowed them to
increase/decrease supply as needed
BANKING AND GREAT DEPRESSION
Fed. Was unable to prevent Great Depression
FDR acted to restore system in 1930s Est. FDIC to insure
customer deposits if bank failed
Changed currency to Fiat money so Fed could better control the supply
TWO CRISES FOR BANKING
1970s-1980s Many industries Deregulated Led to crises for S/L;
wasn’t prepared for competitions
High interest rates and risky loans added on
1989 congress passed legislation to abolish independence of S/L industry
Mortgage companies and banks lent $ to people who couldn’t afford to pay them off
Interest rates increased and led to foreclosures
Ripple effect hit banks and creditors hard and led to recession
Led to 2008 Bailout of banks, auto-makers, and financial firms
Savings/Loan Sub-Prime Mortgage
LESSON CLOSING
Workbook pages 91 and 23
S2 Quiz for tomorrow Finish “Warning Video”
10.3 BELL WORK•Watch 2 Online Sources
• Visual Glossary• Action Graph
•Finish Sect. 2 Quiz
10.3
“What banking services to financial institutions provide?”
Objectives How money supply in U.S. is measured Functions of Financial institutions Different types of Financial Institutions Changes brought by electronic banking
Key Terms http://
www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch10/Econ_OnlineLectureNotes_ch10_s3.swf
INTRODUCTION
What banking services do financial institutions provide? Financial Institutions
Provide electronic services Issue credit cards Make loans to businesses Provide mortgages to prospective home buyers Manage ATM machines
MEASURING MONEY SUPPLY
To keep track of different types economists divide money into categories
M1 represents money that people can gain access to easily. Have liquidity (converted to cash easily) Currency held by public Deposits in checking accounts Traveler’s checks
M2: all assets in M1 plus several additional assets. Cannot be converted to cash as easily Called Near Money; Savings, mutual funds, CDs
FUNCTIONS OF FINANCIAL INSTITUTIONS
Provide wide range of services Storing money
Provide safe place to store money Saving Money
Offer people ways to save money though: Savings accounts Checking accounts Money market accounts, allow people to save and
write limited amount of checks CDs, offer guaranteed rate of interest but cannot be
removed for period of time
FUNCTIONS OF FINANCIAL INSTITUTIONS
Loans Lend money to people and charge interest on
loans Loans help consumers:
Buy homes, pay for college, start/grow businesses Many banks loan money to other financial
institutions/individuals Called Fractional Reserve Banking
Mortgages/Credit Cards Specific type of loan to buy real estate Banks also issue credit cards
Owners can buy goods/services w/promise to repay Often have high interest rate
SIMPLE AND COMPOUND INTEREST
Interest is price paid for use of borrowed money
Principal is amount borrowed Simple Interest
Amount of interest paid only on the principal Compound interest
Amount paid on both principal and gained interest
Interest is how banks make money! They take in more than they pay out
TYPES OF FINANCIAL INSTITUTIONS
•Offer checking accounts, accepts deposits, and makes loans
Commercial Banks
•Allows people to save/borrow enough for own homes
Savings/Loan Assoc.
•Owned by depositors who make smaller deposits than commercial bank would take
Savings Banks
•Cooperative lending assoc.’s est. for particular groups
Credit Unions
•Make installment loans to consumers
Finance Companies
ELECTRONIC BANKING
•ATMs allow customers to deposit/withdraw cash, and obtain information
ATMS•Debit cards can be used at an ATM or in a store to purchase goods. Require PIN for security
Debit Cards
•More people using internet to check balances, transfer money, automatically deposit checks, and pay bills
Home Banking
•Automated clearing houses allow consumers to pay bills w/out writing checks
ACHs
•Carry money on them to be used in that store up on a phone (w/minutes)
Store-value Cards
Has Increased with the increasing importance of computers
LESSON CLOSING
Finish Online Videos How the Economy Works Case Study
Finish Any of Open workbook Test Friday
Review/Work Day tomorrow