Unit 7 Evaluate the investment decisions made by individuals, businesses, and the government. Describe the role of money in trading, borrowing, and investing

I: Function of Money A: Money: coin and paper currency A: Money: coin and paper currency 1. medium of exchange = using money to purchase goods and services 1. medium of exchange = using money to purchase goods and services 2. unit of measure=using money to compare prices of goods and services 2. unit of measure=using money to compare prices of goods and services Comparing price tags or prices in advertisement Comparing price tags or prices in advertisement 3. store of value=money will keep its value if it is stored. 3. store of value=money will keep its value if it is stored. A. your money can make money through earning interest by saving it. A. your money can make money through earning interest by saving it. B. your money can lose value through inflation= rise in prices. B. your money can lose value through inflation= rise in prices.

II: The Banking System A: Financial Institutions: banks, savings and loan associations, credit unions, etc. A: Financial Institutions: banks, savings and loan associations, credit unions, etc. 1. All three institutions collect money from households, keeping it safe as deposits, and investing the money by loaning it to individuals or firms. 1. All three institutions collect money from households, keeping it safe as deposits, and investing the money by loaning it to individuals or firms. Banks accept demand deposits and time deposits. Banks accept demand deposits and time deposits. Demand deposits or checking accounts earn little interests but their funds are available immediately upon the depositor's demands. Demand deposits or checking accounts earn little interests but their funds are available immediately upon the depositor's demands. Time deposits or certificates of deposit (CDs) require the depositor to leave the money at the bank for a specified time during which the money earns interest. Time deposits or certificates of deposit (CDs) require the depositor to leave the money at the bank for a specified time during which the money earns interest.

Banking C. Federal Deposit Insurance Corporation( FDIC) insures to $250,000 all accounts in federally chartered banks. Established in the 1930’s as a result of the Great Depression. C. Federal Deposit Insurance Corporation( FDIC) insures to $250,000 all accounts in federally chartered banks. Established in the 1930’s as a result of the Great Depression. National Banking Act: In 1863 Congress passed the act federally chartering private banks who then issued national banknotes uniform in appearance. Before the Civil War, each state had their own bank and own currency. National Banking Act: In 1863 Congress passed the act federally chartering private banks who then issued national banknotes uniform in appearance. Before the Civil War, each state had their own bank and own currency. Savings and Loan Crisis: In the 1970’s Congress began to ease regulation of banking activities. Savings and Loans began to make higher-risk loans and activities. Some S&L’s failed in the 1980’s and 1990’s and the Federal Reserve intervened, took over and regulated them like banks, and insured deposits. Savings and Loan Crisis: In the 1970’s Congress began to ease regulation of banking activities. Savings and Loans began to make higher-risk loans and activities. Some S&L’s failed in the 1980’s and 1990’s and the Federal Reserve intervened, took over and regulated them like banks, and insured deposits. Gramm-Leach-Bliley Act: Allowed commercial banks to offer full range of financial services, banking, insurance, and securities. Gramm-Leach-Bliley Act: Allowed commercial banks to offer full range of financial services, banking, insurance, and securities. 2010: Dodd-Frank Bill passes Congress because of the housing loan, and banking investment difficulties of 2008 and 2009, thus imposing heavy regulation of banks and their lending practices. 2010: Dodd-Frank Bill passes Congress because of the housing loan, and banking investment difficulties of 2008 and 2009, thus imposing heavy regulation of banks and their lending practices.

III: Monetary Policy A: Federal Reserve: Nation’s Bank A: Federal Reserve: Nation’s Bank 12 Federal Reserve Banks- regulate the money supply by doing 3 things: 12 Federal Reserve Banks- regulate the money supply by doing 3 things: 1: Reserve Requirement: amount of money the government requires banks to have on hand to repay depositors. 1: Reserve Requirement: amount of money the government requires banks to have on hand to repay depositors..1. affects the money supply (the point of monetary policy).1. affects the money supply (the point of monetary policy) 2. if the Federal Reserve Bank wants to reduce the money supply – tight money– it will raise reserve requirements. 2. if the Federal Reserve Bank wants to reduce the money supply – tight money– it will raise reserve requirements. 3. if it wants to increase money supply and have easy money, it will reduce the reserve requirement. 3. if it wants to increase money supply and have easy money, it will reduce the reserve requirement.

B: Government manages its taxation and spending with fiscal policy. C. Federal Reserve manages the economy through Monetary Policy C. Federal Reserve manages the economy through Monetary Policy D: To tighten money supply: stop recession D: To tighten money supply: stop recession FED will raise the discount rate FED will raise the discount rate Sell Treasury securities-taking money out of economy Sell Treasury securities-taking money out of economy E: To loosen money supply: stimulate economy: E: To loosen money supply: stimulate economy: FED lowers discount rate FED lowers discount rate Buys Treasury securities adding money to economy Buys Treasury securities adding money to economy

Let’s Recap Contractionary:Tighten policy Raise Discount rate Raise Discount rate Sell Securities on the Open Market Sell Securities on the Open Market Raise the Reserve Requirement Raise the Reserve Requirement Goal: Take money out of supply Goal: Take money out of supply Expansionary:Loosen policy Lower Discount Rate Lower Discount Rate Buy Securities Buy Securities Lower Reserve Requirement Lower Reserve Requirement Goal: Stimulate economy- put more money available in economy Goal: Stimulate economy- put more money available in economy

IV: Investing A: Households can invest in insurance against future problems A: Households can invest in insurance against future problems B: Types of Insurance B: Types of Insurance 1. Medical insurance pays for health care 1. Medical insurance pays for health care 2. Liability Insurance covers damage done to another person, for example, while driving or to another person’s property 2. Liability Insurance covers damage done to another person, for example, while driving or to another person’s property 3.Comprehensive insurance covers damage to a vehicle from vandalism, theft, or natural disaster 3.Comprehensive insurance covers damage to a vehicle from vandalism, theft, or natural disaster

V: Other types of Savings and Investment Accounts Roth IRA: periodic deposits, earns variable interest rate, can be tax deductible. Can’t withdraw without penalty. Roth IRA: periodic deposits, earns variable interest rate, can be tax deductible. Can’t withdraw without penalty. 401K: Retirement accts. through employer, earns variable interest rate. Can’t draw except at retirement or specific needs. 401K: Retirement accts. through employer, earns variable interest rate. Can’t draw except at retirement or specific needs. Education IRA: non-deductible acct. that has tax free withdrawals for child’s college education. Education IRA: non-deductible acct. that has tax free withdrawals for child’s college education. Stocks: Shares of ownership in companies that pay dividends. Stocks: Shares of ownership in companies that pay dividends. Mutual Funds: pooled money invested, interest is earned. Mutual Funds: pooled money invested, interest is earned. Money Market Accounts: High interest on large deposits, may withdraw any time. Money Market Accounts: High interest on large deposits, may withdraw any time.

Homework: Due Wednesday Copy the Life of a Check into your notes on a separate sheet of paper. Copy the Life of a Check into your notes on a separate sheet of paper. Copy the Visual Summary graphic organizers into your notes Copy the Visual Summary graphic organizers into your notes What is money? What is money? What is the Federal Reserve? What is the Federal Reserve? What do banks do? What do banks do?