5/8 Warm-Up Pass up p What makes stockholders responsible for only a portion of the debts of a corporation? 2.How do banks make money? 3.Give 3 characteristics of “good” money? Bonus ? The mechanics of US Airways seeking representation from which major union?

Federal Reserve p. 269

Federal Reserve System (Fed)  Our nation’s first central bank  Created in 1913 by the Federal Reserve Act  System is created of 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

Main Tasks of the Fed  Supervise and Regulate Banks  Implement Monetary Policy  Ex. During times of recession and depression the Fed decreases interest rates. (this encourages lending and discourages savings)  During times of inflation, the Fed increase interest rates. (this encourages savings and discourages lending)

Main Tasks of the FED  Control the amount of currency that is made and destroyed on a daily basis  Set required reserve ratio for demand deposits  Change the discount rate – interest that commercial banks pay the Federal Reserve

Federal Reserve Video  Answer questions to “Inside the Fed” on p. 265 (on right side of paper)

The Fed Today  The Fed Today The Fed Today

Keynesian Economics Objective: to differentiate between expansionary and contractionary fiscal policy through class notes. p. 261

Keynesian Economics  A form of demand-side economics that encourages government action to increase and decrease demand and output  Demand-side economics- the idea that government spending and tax cuts help an economy by raising demand

John Maynard Keynes  Developed his theory after the Great Depression. His ultimate goal was to tell economists and politicians how to get out of and avoid economic crisis

Keynes believed that two things needed to happen to end the Great Depression  Consumers need to spend more money Keynes thought that the spender should be the government. According to his theory, the government should buy goods and services. This would encourage production and increase employment  Businesses need to increase output

Keynesian Economics  According to Keynes, the government should stimulate demand through spending EVEN IF it resulted in a deficit.

As a result of this theory, people go back to work and then spend the money they make on goods and services- this increases production.

Fiscal Policy- the use of government spending to influence the economy monetary flow physical flow monetary flow physical flow Circular Flow Diagram of a Mixed Economy Households Firms Government expenditures

Fiscal policy can be used to fight two macroeconomic problems, according to Keynes. Expansionary Policy Contractionary Policy Fiscal Policy

Expansionary Policy  Recession (decline in economic prosperity) / Depression (Long recession) government should increase spending OR Government should decrease taxes

Contractionary Policy  Inflation (general increase in prices) Government should decrease spending OR Government should increase taxes

The US Economy on a Micro Scale If you shrink down the US economy to a “household” level… Income= $24,000 Spending- $38,000 Yearly Credit Card Debt= $14,000 Balance on Credit Card= $164,000

Supply-Side Economics  Supply-side economics- a school of economics that believes that tax cuts can help an economy by raising supply  Those that agree with supply-side economics believe that taxes have strong negative influences on economic output

Trickle Down Economics  Investing money in companies and giving them tax breaks will benefit the economy. Eventually individuals (consumers) will experience the effects, thus, they trickle down to the households.

Opposition to Keynes  Many economists disagree with Keynes, most notably Friedrich August Hayek.  Hayek said booms and busts were a regular economic cycle and should NOT be regulated by the government.  Booms are a result of overspending (through credit) and the bust is the natural way the economy corrects itself.  Keynes v. Hayek rap Keynes v. Hayek rap  Keynes v. Hayek rap pt. 2 Keynes v. Hayek rap pt. 2

THE FEDERAL RESERVE AND GOVERNMENT ECONOMIC POLICY, p. 282  Monetary Policy: The Fed’s power over interest rates and the amount of $ in reserve  Fiscal Policy: The Gov’t’s (Congress - President) power over taxes, & spending

CONTRACTIONARY POLICY (TIGHT $$) - USED DURING INFLATION!!!  Increase interest rates  Increase reserve requirements ($$ banks must have in reserve)  Increase taxes  Decrease gov’t spending

EXPANASIONARY POLICY (EASY or LOOSE $$) USED DURING RECESSION /DEPRESSION  decrease interest rate (easy to buy)  decrease taxes  decrease reserve requirements (banks have more $$ to loan)  increase government spending

Classwork/Homework Finish Review Sheet Goal 8B, p STUDY for TEST Thursday

Reading Guide Quiz 22.1,22.2,23.1 pp. 259, 260, 266  1. What are the three main types of businesses?  2. Who owns a corporation?  3. What is limited liability?  4. What is a labor union?  5. What are right to work laws? Does NC have them?  6. What is an injunction?  7. What are private goods? Give an example.  8. What are public goods? Give an example.  9. What are anti-trust laws?  10. What is a merger?

Warm-Up Questions (to be turned in)  Listen to the following story on NPR and answer the following questions (4 min.):  1.Where is this money located?  2. Describe the money.  3. Why did the society decide they needed the stones?  4. Analyze the money discussed using the 6 characteristics of money as a framework: Durability, Portability, Divisibility, Uniformity, Limited Supply and Acceptability. How does it compare to the dollar?  5. What was the main difference between the philosophies of Adam Smith and John Meynard Keynes?  **Did anyone check the stocks this morning?