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 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

Part 1 GOVERNMENT FINANCES

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 (16th 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?

AN INTERDEPENDENT WORLD Part 3 AN INTERDEPENDENT WORLD

Global Interdependence Global Interdependence means that people and nations all over the world depend on one another for goods and services Nations compete and cooperate to make trade beneficial for everyone

Why do countries trade? International trade allows nations to produce a limited number of goods based on their resources while consuming a variety of goods Comparative Advantage is ability to produce a product most efficiently given all the other products it could produce The Law of Comparative Advantage states a nation is better off producing goods and services for which it has a comparative advantage

Export- a good sent to another country Import- a good brought in from another country Trade Balance- the relationship between a nation’s imports and its exports Trade surplus- nation exports more than it imports Trade deficit- nation imports more than it exports Tariff- a tax on imported good Embargo- complete barrier of trade with a country; NO trade (Cuba)

The US and Trade The US imports more than 2/3 of the oil it uses (this number is growing) The Us imports many minerals used in industries The US sells computers, aircraft, medical equipment, and machinery around the world Poor countries look to the US for food, medicine and weapons

Economic Development Around the World Historically, economists divided the world’s nations into 3 categories- 1st World Countries- the Wealthiest countries 2nd World Countries- Communist countries 3rd World Countries- the poorest countries

Economic Development Around the World Now, economists just use 2 categories- Developed Countries- the wealthiest countries (US, Canada, Japan) Less Developed Countries or Developing Countries- poorer countries (this includes the poorest countries in the world, and countries that haven’t reached a high standard of living for most citizens)