1. Money Definition - any substance that serves as a medium of exchange,
measure of value,
store of value

2. Money Medium of Exchange
Accepted by all parties as payment for goods and services
Examples:
Gold
Silver
Salt (salarium = salary)

3. Money
Measure of Value
Common denominator that can express worth in terms everyone understands

4. Money
Store of Value
Purchasing power can be saved until needed

5. History of Money Early Societies Variety of forms: Tea bricks in China
Compressed cheese in Russia
Spear necklaces in East Africa
Commodity money – has an alternative use
Fiat money – by government decree

6. History of Money Examples in Colonial America Commodity Money
Gunpowder
Musket balls
Corn
Hemp
Tobacco
Fiat Money
Wampum – one English penny = 6 white or 3 black shells

7. History of Money Colonial America Paper Currency Specie
Printed money usually backed by gold or silver
Specie
Coins made of gold or silver

8. History of Money Origins of the Dollar
Spanish Peso - most common currency in America in 1789
Known as “pieces of eight” - it had eight sub-parts or “bits”
“dollar” (from Austrian “taler”) became our monetary unit with 10 sub-parts instead of 8
“Two bits” = .25¢

9. History of Money Characteristics of Money Portability Durability
Divisibility
Limited availability

10. History of Money Does our money today meet these characteristics?
Portability
Durability
Divisibility
Limited availability

11. History of Money Groups Assignment
In groups of 3-5, read the text book (pages ) to determine the following information on the history of money in the U.S.:
Dates
Backing (gold, silver, etc.)
Problems or issues with it
Report findings to the class and complete the chart on the following slide for a grade

12. Early Banking in U.S. Era Years Backing Problems/Issues
Privately Issued Bank Notes
Greenbacks
National Currency
Gold/Silver/
Treasury Notes
Gold Standard
Managed Money Supply

13. Early Banking in U.S. Era Years Backing Problems/Issues
Privately Issued Bank Notes
Greenbacks
National Currency
Gold/Silver/
Treasury Notes
Gold Standard
Managed Money Supply
Gold? silver?
None?
No control
No backing, lost faith in them, 10,000 diff. kinds
None
U.S. gov’t
bonds
Shifted from private to public control
Gold or silver
No single standard
limited supply of gold, price changes
Gold
Money supply can change; affects economy
1934-today
None

14. Modern Banking Federal Reserve System 1913 – central bank created
Private corporation – shares owned by private banks
Publicly controlled – chairman appointed by President (approved by Congress)
Prints Federal Reserve Notes – inconvertible fiat money since 1934

15. Modern Banking Federal Deposit Insurance Corporation (FDIC)
1933 – Act of Congress during the Depression
At first insured $2,500 on all accounts
Now insures $250,000
$250,000

16. Modern Banking Other Depository Institutions
Savings Banks – owned by stockholders
Began offering NOW accounts in 1970s – pay interest on balance in the checking account

17. Modern Banking Other Depository Institutions Credit Unions
Owned by and operated for its members
Non-profit
Offer NOW accounts too

18. Modern Banking Other Depository Institutions
Savings & Loan Associations
Most money used for home mortgages
Insured by Federal Savings and Loan Insurance Corp. (FSLIC) since the 1930s

19. Modern Banking Problems with Savings & Loans
Deregulated during Pres. Reagan’s term of office (1970s)
High interest rates for loans caused many to close
Fraud, corruption, scandals
Government stepped-in and paid $300 billion to “bail out” the savings banks

20. Modern Banking Problems with Banks Failures caused because of:
Poor management
Make loans without adequate collateral (people borrow money without anything to sell to pay it back)
Economy is weak (businesses not growing)

21. Measuring the Nation’s Output
GDP – Gross Domestic Product
Dollar amount of all goods, services, and structures produced in a country in a year
Single most important measure of a country’s overall economic performance
Honda plant – Greenburg, Indiana
Is this included in GDP?

22. How is the dollar amount of each of the products on the table calculated?

23. Measuring the Nation’s Output
Consumer Price Index
Price ranges for about 90,000 items in 364 categories from 85 areas of the country
Compared with prices

24. Measuring the Nation’s Output
Current GDP
GDP that is not adjusted to remove the effects of inflation
Real GDP
GDP in constant dollars – adjusted for inflation since 1996
inflation – rise in the general level of prices

25. GDP and Population Census Official count of all people every ten years
Demographers
People who study growth, density, and other characteristics of the population to include:
Fertility rate – number of births that 1,000 women will undergo in a lifetime
Life expectancy – average life span
Net immigration – change in population from people leaving and entering country

26. GDP and Population

27. GDP and Economic Growth
Short Term Growth
Measured by real GDP over the last 1-5 years (GDP adjusted for inflation)
Long Term Growth
Measured by real GDP per capita – dollar amount of real GDP produced on a per person basis
adjusts for both inflation and population

28. Business Cycles and Fluctuations
Regular ups and downs of real GDP
Business Fluctuations
Irregular rise and fall of real GDP over time

29. Business Cycles and Fluctuations
Recession
Real GDP decline for 2 quarters in a row (averages 11 months)
Trough
Turn-around point where real GDP stops going down
Expansion
Period of recovery from a recession (averages 43 months)

30. Possible Causes of Business Cycle
1. Capital Expenditures
Build too many new plants in expansion years
Pull back/layoff employees causing recession
Starbucks plans to close 600 stores across U.S.
12,000 employees affected, but company hopes to absorb some

31. Possible Causes of Business Cycle
2. Inventory Adjustments
Businesses increase inventories in expansion period
Reduce inventories at first sign of slowdown
Causes a fluctuation in real GDP/recession

32. Possible Causes of Business Cycle
3. Innovation and Imitation
New product or technology results in business growth and imitators compete for a share of the market
(dot com bubble)
When they have caught up, investments slow down again

33. Possible Causes of Business Cycle
4. Monetary Factors
Credit and loan policies of the Federal Reserve System
Low interest rates, loans easy to get – stimulates investment
As demand for loans increases (shortage), interest rates rise, and borrowing slows down

34. Possible Causes of Business Cycle
5. External Shocks
Increases in oil prices in 2001, 2008
International conflict/wars
Can be positive – discovery of a new energy source (North Sea oil, gas in Gulf of Mexico)
DOHA, Qatar, Oct. 19 — OPEC producers sought to reassert their grip on falling oil markets on Thursday by backing a production cut of 1.2 million barrels a day, and suggested more reductions could follow this year to prop up sagging prices.

35. Index of Leading Economic Indicators
Clinton elected
Index of Leading Economic Indicators – monthly statistics that can predict recessions

36. Unemployment
Unemployment Rate – number of unemployed individuals divided by the total number of persons in the civilian labor force
Rises during a recession

37. Unemployment Unemployment Rate – does not include:
People not trying to get a job
People working part-time

38. Kinds of Unemployment
Frictional Unemployment – workers who are between jobs for some reason or another
Structural Unemployment – caused by fundamental change in technology or consumer tastes

39. Kinds of Unemployment
3. Cyclical Unemployment – directly related to swings in the business cycle (recession)
4. Seasonal Unemployment – caused by changes on the weather or changes in demand (takes place every year)

40. Kinds of Unemployment
5. Technological Unemployment – less skilled workers are replaced by machines, robots, and other equipment
Where are all the workers??

41. Inflation
Measuring inflation: the relative price level for products at some point in time
Inflation is reported in terms of annual rates of change of the price level
What usually happens to inflation during a recession?

42. Causes of Inflation
1. Demand-pull: demand for goods exceeds supply (shortage) and prices are pulled up

43. Causes of Inflation
2. Government deficit spending: demand increases due to government spending, causes a shortage and prices rise
Deficit Spending:
Government spending money it does not have

44. Causes of Inflation
3. Rising labor costs: as laborers demand higher wages, businesses increase prices to offset costs

45. Causes of Inflation
4. Too much money in circulation: Federal Reserve increases money supply

46. The Fisher Equation MV=PQ M = Amount of Money in Circulation
V = Velocity of money (times each monetary unit is spent in a year)
P = Price Level (average of all goods/services)
Q = Physical Quantity of all goods/services in a year
PQ = Total amount spent in an economy in a year

47. How the Fisher Equation Works
MV=PQ
Year One: M=100
V=4
P=10
Q=40 (100)(4)=(10)(40)
Year Two: M=200
V=4 (stays constant)
P= ?
Q=40 (does not change in short run)
What happens to the price with an increase in the money supply?
(200)(4)=(?)(40)
P=20

48. Effects of Inflation
1. Dollar buys less

49. Put off buying big ticket items
Effects of Inflation
2. People change spending habits
Put off buying big ticket items

50. Effects of Inflation
3. Some people invest in luxury items hoping the price will rise

51. Effects of Inflation
4. Borrowers pay back loans with devalued dollars and lenders lose out

52. Causes of Business Cycle
On a clean sheet of paper, complete this graphic organizer:
Causes of Inflation 1. 2. 3. 4.
Economic Instability
Kinds of Unemployment 1. 2. 3. 4. 5.
Causes of Business Cycle 1. 2. 3. 4. 5.

53. Group Activity (p. 394-400) What is the Lorenz Curve?
Distribution of Income:
What is the Lorenz Curve?
What is a quintile?
Which quintile earned the most income in 2000?
What percentage of the total income was earned by the lowest quintile?

54. Group Activity (p )
Reasons for Income Inequality :

55. Poverty, reasons for a growing income gap :
Group Activity (p )
Poverty, reasons for a growing income gap :

56. Group Activity Anti-poverty Programs : Income Assistance – Example
General Assistance –
Social Service Programs –
(p )

57. Group Activity Anti-poverty Programs : Tax Credits – Example
Enterprise Zones –
Workfare Programs –
Negative Income Tax –
(p )

58. Group Activity Personal Income by State :
Which state has the highest income?
Which state has the lowest income?
Where is Texas on the scale?
Which states have the highest and lowest percentage of growth?
(p )

59. Stock Market Stocks – ownership certificates in a corporation
When someone purchases a share of stock, he/she becomes an owner of a corporation
Can then vote for a board of directors to set the company’s policies and goals

60. Stock Market
Stock Exchanges – places where buyers and sellers meet to trade securities (for example: shares of stock)

61. Stock Market The New York Stock Exchange – located on Wall Street
Has 1,440 seats, or memberships
Members pay several million dollars for each seat
Lists stocks from over 3,000 companies

62. Stock Market

63. Dow Jones Industrial Average
3M Co.
Alcoa Inc.
American Express Co.
AT&T Inc.
Bank of America Corp.
Boeing Co.
Caterpillar Inc.
Chevron Corp.
Citigroup Inc.
Coca-Cola Co.
E.I. DuPont de Nemours & Co.
Exxon Mobil Corp.
General Electric Co.
General Motors Corp.
Hewlett-Packard Co.
Home Depot Inc.
Intel Corp.
International Business Machines Corp.
Johnson & Johnson
JPMorgan Chase & Co.
Kraft Foods Inc. Cl A
McDonald's Corp.
Merck & Co. Inc.
Microsoft Corp.
Pfizer Inc.
Procter & Gamble Co.
United Technologies Corp.
Verizon Communications Inc.
Wal-Mart Stores Inc.
Walt Disney Co.
Most popular measure of stock market performance
Includes stock prices of 30 companies
Dow

64. Bull vs. Bear Markets Bear Market – Bull Market – “mean” market
Prices of stocks going down for several months or years
Bull Market –
“Strong” market
Prices going up for several months or years