Economics Do you know your currency?

Series 1928 or 1934 $500 bill William McKinley

Series 1928 or 1934 $1,000 bill Grover Cleveland

Series 1918 $5,000 bill James Madison

Series 1918 $10,000 bill Salmon Chase (Abraham Lincoln’s Secretary of Treasury ~ helped greatly during financial mess of Civil War)

Series 1934 $100,000 bill Woodrow Wilson

Macro Economics Robin Hood robs from the rich and gives to the poor. How does the Lorenz Curve apply to this concept?

What are interest rates? When taking out a loan, do you want high or low rates? Why?

Monetary Policy Monetary Policy: –The expansion or contraction of the money supply in order to influence the economy and the amount of spending; as set by the Federal Reserve System (FED). The Federal Reserve System creates monetary policies to control the money supply and regulate the economy.

Monetary Policy If there is too much money relative to supply of goods and services prices go up and we have a period of INFLATION If there is too little money relative to the supply of goods and services prices go down and we have a RECESSION

Monetary Policy Bernanke and the other Chairmen of the FED set policies that regulate the amount of money that is available to the consumers of America. Too much money is bad! Why? Too little money is bad! Why?

Monetary Policies FIGHTING INFLATION: 1.Take money out of circulation. 2.Let the money supply decline. 3.Overall demand decreases. 4.Prices Fall!!

Monetary Policies FIGHTING A RECESSION: 1.Add money to circulation 2.Increase the monetary base 3.Overall demand increases 4.Prices Rise

How does the FED create/detract money without physically printing or destroying it????!!!!

Have out notesheet from yesterday Warm Up: How does a bank earn money from customers? How do customers earn money from banks?

FED Interest Rate

Tools Used By The FED: 1.Discount Interest Rate: FED loans $ to banks at the discounted rate, the bank then loans that money out to people to help stimulate demand. Current Rate:.25% or ¼% WHY?: If Interest Rates are cheap, people borrow money, putting more money into the economy (and vice versa).

How the FED Operates The FED offers a current rate of.25% or ¼% Ben Bernanke time/specials/packa ges/article/0,28804, _ ,0 0.html

How the FED Operates The FED is the Bank of the U.S. and the bank of all the banks in the U.S. Banks, like HSBC, borrow money from the FED and turn around and loan it out to people at a higher rate. When the FED lowers its interest rate, it is a signal to people that bank rates should follow!!!

FED Interest Rate

How the FED Operates When loans are “cheap” people will _____________ because When loans are “expensive” people will __________________ because Borrow $ Not borrow $$

FED Interest Rate

Monetary Policies (1)If the FED increases the interest rate it is hoping to _____________ the money supply, which will fix the problem of _______________. (2)If the FED decreases the interest rate it is hoping to ____________ the money supply, which will fix the problem of __________________. Decrease inflation increase recession Loans are too expensive, people will slow down spending Loans are cheap, people will be excited to spend!!

Tools Used By The FED: 2. Fractional Reserve Requirement: FED require banks to hold in reserve a fraction of all deposits; banks may loan out the rest of the deposits. Current Rate: 10% WHY?: the more money the banks can loan out, the more there is in circulation (and vice versa).

Monetary Policies (1)If the FED increases the reserve requirement/Discount Rate it is hoping to _____________ the money supply, which will fix the problem of _______________. (2)If the FED decreases the reserve requirement/Discount Rate it is hoping to ____________ the money supply, which will fix the problem of __________________. Decrease inflation increase recession Banks must hold on more $$, less available for loans Banks are able to loan out more money to borrowers

Monetary Policy It is up to Ben Bernanke to use sophisticated computer models to monitor and provide the right amount of liquidity throughout the United States. Liquidity: the potential to be converted to cash in a very short time (savings, stocks) NOT: property, antiques, collectables.