WARMUP  Why does the dollar on the left have value, while the one on the right does not?

MONEY, BANKING AND FINANCE Economics Unit IV

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 IS THE FEDERAL RESERVE SYSTEM?  When banks need money, they borrow from the Fed.

WHAT ARE THE MAIN FUNCTIONS OF THE FEDERAL RESERVE?  Regulator  Government’s bank  Monetary Policy

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?

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 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

WARMUP  : What purpose does money serve for us?

PART II – PERSONAL FINANCE

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

CAVEAT EMPTOR  “let the buyer beware”

FOOD DRUG AND COSMETIC ACT  Requires packages to list their ingredients according to the amount of each

PURE FOOD AND DRUG ACT  Manufacturers must prove that their product is safe.

FAIR PACKAGING AND LABELING ACT  Every package must have a label identifying its contents and weight

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 CREDIT?  Borrowing money to pay for something now while promising to repay it later

WHERE DO PEOPLE GO TO BORROW CREDIT?  Banks,  Credit unions,  Finance companies  Stores and businesses

WHY SHOULD PEOPLE SAVE MONEY?  To make large purchases  Emergencies  Luxuries

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.*** OR

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.

EXPRESSPOLL 4/30/ :36:43 AM