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Warmup  Why does the dollar on the left have value, while the one on the right does not?

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Presentation on theme: "Warmup  Why does the dollar on the left have value, while the one on the right does not?"— Presentation transcript:

1 Warmup  Why does the dollar on the left have value, while the one on the right does not?

2 Money, Banking and Finance Economics Unit IV

3 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

4 What types of money can be used?  Historically – salt, animal hides, gems, and tobacco  Today (Currency) – coins and paper money.

5 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.

6 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.

7 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

8 What is the Federal Reserve System?  When banks need money, they borrow from the Fed.

9  Regulator  Government’s bank  Monetary Policy What are the main functions of the Federal Reserve?

10  Regulator.  Approves mergers of large banks  controls international banking and US banking relations  regulates loan contracts

11  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?

12  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?

13 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

14 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

15 Open Market Operations  Changing the money supply  Buying bonds = higher money supply  Selling bonds = lower money supply

16 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

17 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

18 Warmup  : What purpose does money serve for us?

19 Part II – Personal Finance

20 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.

21 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

22 Caveat emptor  “let the buyer beware”

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

24 Pure Food and Drug Act  Manufacturers must prove that their product is safe.

25 Fair Packaging and Labeling Act  Every package must have a label identifying its contents and weight

26 Better Business Bureau  Provide information about businesses  Warn consumers about dishonest business practices.

27 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)

28 What responsibilities do consumers have?  Make smart buying decisions  Stay informed about businesses  Report faulty products  Make fair complaints  Seek help for unsettled claims

29 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

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

31 What is credit?  Borrowing money to pay for something now while promising to repay it later

32 Where do people go to borrow credit?  Banks,  Credit unions,  Finance companies  Stores and businesses

33 Why should people save money?  To make large purchases  Emergencies  Luxuries

34 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

35 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

36 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.

37 ExpressPoll 4/30/2012 10:36:43 AM

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