1. 2.03 Federal Reserve & Stock Market
Objective 2.03 Explain how the Federal Reserve, Stock Market, and e-commerce impact the United States’ economic system.

2. The Federal Reserve Central Bank of the United States
Regulates the money supply in the US economy
Raises and lowers the discount interest rate
Puts money into circulation
Removes money from circulation

3. Impact of the Federal Reserve
If the Federal Reserve raises the discount rate
Consumer credit becomes more expensive
Consumers buy fewer large goods—refrigerators, boats, etc.
If the Federal reserve lowers the discount rate
Consumer credit becomes less expensive
Consumers buy more expensive goods—cars, washing machines, etc.

4. What are stocks? Stocks are shares of ownership in corporations
Shareholders have partial ownership in the corporation
Corporations are permitted to sell stock to raise capital for the corporation
Shareholders may receive dividend payments from the corporation

5. What other investments are traded?
Bonds—loans made by the investor to the issuer; the investor is repaid with interest
Corporate Bonds
Municipal Bonds
Treasury Bonds
US Savings Bonds
Futures—agreement to buy or sell a commodity (oil, gold, etc.) at some point
Mutual Funds—combination of individual stocks
Stocks, Bonds, Futures, and Mutual Funds are called Securities.

6. The Stock Market’s Purpose
The stock market is where shares of stocks, bonds, and futures are bought and sold (or traded). (Can be electronic.)
The stock exchange is the actual physical location where stocks are listed and traded.
New York Stock Exchange (NYSE)
American Stock Exchange
NASDAQ—virtual exchange

7. The Stock Market’s Functions
Provides companies with a way of issuing shares of stock to people who want to invest in the company. The sale of shares of stock is a way for the corporations to raise money.
Provides a place for the buying, selling and trading of stocks (and other securities).

8. Stocks help . . .
Stocks are . . .
you raise money from selling those "pieces" of your business which can be used to build new plants and facilities, pay down debt, or acquire another company.
smart owner will keep at least 51% of the stock, which will allow them to retain control of the day to day activities
controlling shareholder
Stock is ownership in a company. (Equity)
If you were to divide your business up into small pieces and sell those pieces, you would essentially have issued stock.

9. What is the Dow Jones Industrial Average?
An index of thirty, blue chip stocks that are traded in the United States.
It is believed that by looking at the companies on the list, a person can get a general picture of how the market as a whole is performing.
The most quoted and followed index in the world, and dates back to May 26, 1896.

10. Bear Market 1929 Crash most famous crash in U.S. history
Dow Industrials hit a high of 386 in September, 1929.
It did not get back to that level until November, 1954
Dow dropped 89%
1987 – The Market fell dramatically.
A prolonged period in which investment prices fall, accompanied by widespread pessimism
Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly

11. Bull Market
long term uptrend (months to years) price movement in any market
An extended period of generally rising prices
characterized by optimism, investor confidence and expectations that strong results will continue.

12. Impact of E-commerce on the Economy
Because consumers can purchase goods on the Internet they have more choices in goods.
Global competition is increased and US businesses must compete globally.
Fewer salespeople are needed in stores—a shift in jobs is required. More people are needed in order fulfillment and customer service.
Goods are manufactured just-in-time—as they are needed for distribution.