MONEY AND BANKING

What is Money?  Money- anything that people are willing to accept in exchange for goods Types of Money  Coins- metallic forms of money  Currency- Coins and paper money

What is money? Why do we value and accept money?  We are sure that others will accept its value  It has value because we accept it has value In America, money used to be “backed” by gold or silver, but this went out in the 1930’s

Banking  Bank- an institution for receiving, keeping, and lending money Early Banking in the US  Very informal  A merchant would allow customers to deposit money and charge a small fee; This was not always safe… what if the merchant goes out of business or is not trustworthy?

Financial Institutions  Commercial Banks- financial institutions that offer full banking services to individuals and businesses  Savings and Loan Associations- financial institutions that traditionally loaned money to people buying homes; they also take deposits and issue saving accounts  Credit Unions- financial institutions that work on a not-for-profit basis; open for members of a certain group only

Safeguarding our Financial System  The financial system of the US is one of the safest in the world because of regulation and insurance  The FDIC or Federal Deposit Insurance Corporation- the national corporation that insures that individual accounts up to $250,000; was created after the bank collapse of the 1930’s (Great Depression)

The Federal Reserve System  The Federal Reserve System- central bank of the US; The Fed regulates the US monetary & financial system; It is also the government’s bank  12 regional Federal Reserve Banks throughout the country; NC is part of the Richmond Federal Reserve District  Federal Reserve Board- supervises the banks, members appointed by the president

The Federal Reserve System

The Fed as a Regulator-  Regulates large commercial banks  Regulates mergers of banks  Enforces laws that deal with consumer borrowing  Implement Monetary Policy  Ex. During times of recession and depression the Fed decreases interest rates. (this encourages lending and discourages savings)

The Federal Reserve System The Fed as the Government’s Bank-  Holds the government’s money  Sells US government bonds  Controls coins and bills in circulation  Control the amount of currency that is made and destroyed on a daily basis

Government Finances Part 1

Government Finances  Each year the President and Congress work together to create a budget; the President writes the budget and then congress approves the budget

Government Finances Types of Spending  Mandatory spending- spending that does not need the annual approval of Congress  Examples- Social Security benefit checks and interest payments on government debt  Discretionary spending- government expenditures that must be approved each year  Examples- Money spent on defense and highway construction

Government Finances  Appropriations Bills- laws that approve spending for a particular activity  Appropriations Bills always start in the House of Representatives

Parts of the US Budget  Revenues- money taken in by the government  Taken in by- income taxes (16 th Amendment), payroll taxes, excise taxes, estate taxes, & other fees  Expenditures- money spent by the government

Types of Taxes  Progressive tax- the higher one’s income the higher the percentage of tax (income tax)  Regressive tax- tax imposed at a flat rate (sales tax)  Excise- tax on manufacture, sale, and consumption of goods; often called “hidden tax” (tax on fuel, alcohol, tobacco)  Proportional tax- tax that takes the same percentage of income regardless of how much is earned

Local Government Finances State and local government receive revenue from-  Sales tax  State income taxes  Property taxes  Fines and fees  Utilities What are 3 expenditures at the local level?