Warmup Why does the dollar on the left have

value, while the one on the right does not?

Money, Banking and FinanceEconomics Unit IV

What functions does money have?

Medium of exchange – traded for goods and services

Store of value – hold wealth in form of money until ready to use

Measure of value – measuring stick used to assign value to a good or service

What types of money can be used?

Historically – salt, animal hides, gems, and tobacco

Today (Currency) – coins and paper money.

What gives money value? We do; we have confidence that

someone else will accept our money as payment.

A $10 bill costs a few cents to make and has no other value or use

Checking and savings accounts are just numbers on a computer that we have given value to.

What types of institutions work within our financial system?

Commercial Banks – financial institutions that offer full banking to individuals and businesses.

Savings and Loan associations (S&L) – similar to banks, they loan money for buying homes.

Credit Unions – not-for-profit, open only to members of the group sponsoring them.

What makes our financial system safe?

FDIC – Federal Deposit Insurance corporation, insures accounts up to $100,000.

Government Regulation – banks must answer to many rules and regulations

What is the Federal Reserve System?

When banks need money, they borrow from the Fed.

Regulator Government’s bank

Monetary Policy

What are the main functions of the Federal Reserve?

What are the main functions of the Federal Reserve?

Regulator. Approves mergers of large banks controls international banking and US

banking relations regulates loan contracts

Government’s Bank Holds govt’s money that is used to buy

goods sells government bonds and Treasury bills manages nation’s currency

What are the main functions of the Federal Reserve?

Monetary Policy – controlling of the supply of money and the cost of borrowing money Loose Monetary Policy – lowering interest

rates, raising money supply Tight Monetary Policy – raising interest

rates, decreasing money supply

What are the main functions of the Federal Reserve?

What tools does the fed use to conduct its monetary policy?

Discount rate – rate the fed charges member banks for loans Higher discount rate = less money supply Lower discount rate = more money supply

Reserve Requirements Banks must leave a certain amount of

their money in the Fed’s banks Increase reserve requirement = lower money

supply Decrease reserve requirement = higher

money supply

Open Market Operations Changing the money supply

Buying bonds = higher money supply Selling bonds = lower money supply

How do interest rates affect business activity?

Increase in interest rates = less business activity = decreases the money supply

Decrease in interest rates = more business activity = increase in money supply

How did the Great depression of the 1930’s affect the banking industry?

Banks closed because they did not have the funds to repay investor’s savings accounts (too many loans)

Led to stricter regulation

Warmup : What purpose does money serve for

us?

Part II – Personal Finance

Within the free enterprise system, individuals have certain rights The right to: enter most any profession

you wish The right to: buy the products you want

and reject those you do not want.

Types of income Disposable Income – money left after

paying for taxes; used to pay for necessities such as food, clothing, shelter.

Discretionary Income – money left after paying necessities; used to satisfy wants

Caveat emptor “let the buyer beware”

Food Drug and Cosmetic Act

Requires packages to list their ingredients according to the amount of each

Pure Food and Drug Act Manufacturers must prove that their

product is safe.

Fair Packaging and Labeling Act

Every package must have a label identifying its contents and weight

Better Business Bureau Provide information about businesses Warn consumers about dishonest

business practices.

Consumer Bill of Rights Right to a safe product Right to be informed Right to choose (competition) Right to be heard Right to redress (payment for damages)

What responsibilities do consumers have?

Make smart buying decisions Stay informed about businesses Report faulty products Make fair complaints Seek help for unsettled claims

Personal Economics Terms

Budget – a record of the money you earn and spend

Income – the money you make from working

Expenses – things you spend money on, even saving accounts

The Budget Balanced budget – expenses = income Budget surplus – expenses < income Budget deficit – expenses > income

What is credit? Borrowing money to pay for something

now while promising to repay it later

Where do people go to borrow credit?

Banks, Credit unions, Finance companies Stores and businesses

Why should people save money?

To make large purchases Emergencies Luxuries

What is the advantage of putting savings in a bank?

Offers easy availability of funds Withdraw funds at any time without

paying a penalty or fee Earn interest on savings

What are investments? Putting your money at risk in order to

make more money ***Stocks, bonds, and mutual funds carry

more risk than savings accounts, but they can provide greater reward.***

OR

What are other ways to invest money?

Stocks – partial ownership of a company Dividend – payment of company earnings to

investors Bonds – lending money to a company or

government Mutual funds – money from many people

is pooled and invested in a selection of stocks and bonds.