Warm Up  What is money?

Quiz Today!  Suggestion….  Review your notes on  types of economies  Labor unions

Unit 7.3 Money

I. Three Uses of Money A.Medium of Exchange 1.Any object that is accepted for goods and services 2.Barter- w/o money, trade goods and services are traded for others 1.Relies on a “coincidence of wants”

B.Unit of Account 1.Means of comparing the values of goods and services C.Store of Value 1.Money keeps its value in two forms: currency (bills and coins) and deposits (pay debts, convert to currency) 2.Interest- cost of borrowing money

3.Inflation- value of money goes down, prices go up a.Determined by the Consumer Price Index (CPI)- change in prices of essential goods/services b.Deflation- value of money goes up, prices down c.PPI: Producer Price Index: tracks Inflation in input costs

Warm Up 1.What is a “coincidence of wants”? 2.Why does money need to be divisible? 3.Why is it important that money be relatively stable in value? 4.What are three purposes of money?

II. Types of Money 1.Commodity Money –value comes from some natural resource a.Gold; silver ; salt; shells 2.Representative Money –consist of tokens or certificates that can be reliably exchanged for a fixed quantity of some commodity like gold

3.Fiat Money –used as the medium of exchange; it is not backed by or directly convertible into any commodity a.Ex: US currency 4.Legal Tender –money that by law cannot be refused as a medium of exchanged

What is the best explanation for how money makes the exchange of goods & services easier? A.It is easy to carry around B.It last a relatively long time C.It is issued by the gov’t D.It is a medium of exchange that measures value

Which phrase best describes the term currency? A.Coins & paper money B.Checks C.Credit cards D.Debit cards

Unit 7.4 “Federal Reserve System” ‘Eye of the Storm’

I. Creation of “The Fed” A.Federal Reserve Act of created the Federal Reserve 1.To manage inflation and the unemployment & prevent instability in the economy B.Purpose is to lend money to banks in time of need

II. Structure of Federal Reserve System A.Board of Governors 1.7 directors, include Chairman (Janet Yellen) B.Twelve District Reserve Banks

C.Regulating Money Supply 1.Monetary Policy- actions Fed takes to influence level of the U.S.’s gross domestic product a.GDP (value of economic activity in the country) and rate of inflation 2.Reserve requirement- amount of money banks must keep in Fed banks as a reserve

3. Discount rate (Federal Funds Rate)- cost of borrowing from the Federal Reserve a.Reducing the rate- helps to speed up the economy a. banks to borrow more money so they lend more to other people b.Increasing the rate- slows down economy a.By discouraging borrowing

4. Fed Policies a.Easy-money policy- a.reduces rates b. lowers reserve requirement c.Buys bonds= more money in economy b.Tight-money policy- a.increases rates b.raises reserve requirement= less money in the economy c.Sells Bonds= Takes money out of the economy Be the Fed Chairman an/

Other Fed Business  Automated Clearing House (ACH) -an electronic network that processes electronic debits & credits  Direct Deposits: payroll, social security & tax refunds  Direct Debits: mortgage payments, utility  The Reserve Banks & the EPN (Electronic Payment Network) act as an ‘interoperator’ between banks  edit & sort payments  deliver payments.

What is CPI and PPI Consumer Price Index  Index that measures inflation.  CPI takes a basket of everyday goods bought by US consumers and tracks prices Producer Price Index  Index that measures inflation in the supply side of the economy  PPI takes a survey of common commodities and input costs for producers.

How to calculate CPI CPI in year ? - CPI in year 1 CPI in year ? - CPI in year 1 CPI in year 1 CPI in year 1 Inflation rate for year in year ? 100

First Look: Inside the Fed The FedBureau of Printing & Engraving U.S. MintCool Factoids What is it? How does it help the US economy? It’s role in the aftermath of 9/11

First Look Inside the FED  National Geographic National Geographic National Geographic 

Warm Up  Explain the three purposes of money?  What is the difference between currency and deposits?  What is The Fed trying to do for the economy when it implements a ‘easy- money policy’?

What is one role played by the Federal Reserve Bank in the U.S. economy? A.Monitor stock & bond transactions B.Guarantee & protect savings accounts C.Decide monetary policy D.Control fiscal policy

Spending & investing is one part of which government economic tool? A.Monetary policy B.Fiscal policy C.Venture capital D.Open-market operations