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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 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
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
Food Drug and Cosmetic Act
Requires packages to list their ingredients according to the amount of each
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 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.***
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