Warmup

1. Warmup Why does the dollar on the left have value, while the one on the right does not?

2. Money, Banking and Finance Economics Unit IV

3. What functions does money have? • Medium of exchange – traded for goods and services • Store of value – hold wealth in form of money until ready to use • Measure of value – measuring stick used to assign value to a good or service

4. What types of money can be used? • Historically – salt, animal hides, gems, and tobacco • Today (Currency) – coins and paper money.

5. What gives money value? • We do; we have confidence that someone else will accept our money as payment. • A $10 bill costs a few cents to make and has no other value or use • Checking and savings accounts are just numbers on a computer that we have given value to.

6. What types of institutions work within our financial system? • Commercial Banks – financial institutions that offer full banking to individuals and businesses. • Savings and Loan associations (S&L) – similar to banks, they loan money for buying homes. • Credit Unions – not-for-profit, open only to members of the group sponsoring them.

7. What makes our financial system safe? • FDIC – Federal Deposit Insurance corporation, insures accounts up to $100,000. • Government Regulation – banks must answer to many rules and regulations

8. What is the Federal Reserve System? • When banks need money, they borrow from the Fed.

9. What are the main functions of the Federal Reserve? • Regulator • Government’s bank • Monetary Policy

10. What are the main functions of the Federal Reserve? • Regulator. • Approves mergers of large banks • controls international banking and US banking relations • regulates loan contracts

11. What are the main functions of the Federal Reserve? • Government’s Bank • Holds govt’s money that is used to buy goods • sells government bonds and Treasury bills • manages nation’s currency

12. What are the main functions of the Federal Reserve? • Monetary Policy – controlling of the supply of money and the cost of borrowing money • Loose Monetary Policy – lowering interest rates, raising money supply • Tight Monetary Policy – raising interest rates, decreasing money supply

13. What tools does the fed use to conduct its monetary policy? • Discount rate – rate the fed charges member banks for loans • Higher discount rate = less money supply • Lower discount rate = more money supply

14. Reserve Requirements • Banks must leave a certain amount of their money in the Fed’s banks • Increase reserve requirement = lower money supply • Decrease reserve requirement = higher money supply

15. Open Market Operations • Changing the money supply • Buying bonds = higher money supply • Selling bonds = lower money supply

16. How do interest rates affect business activity? • Increase in interest rates = less business activity = decreases the money supply • Decrease in interest rates = more business activity = increase in money supply

17. How did the Great depression of the 1930’s affect the banking industry? • Banks closed because they did not have the funds to repay investor’s savings accounts (too many loans) • Led to stricter regulation

18. Warmup : What purpose does money serve for us?

19. Part II – Personal Finance

20. Within the free enterprise system, individuals have certain rights The right to: enter most any profession you wish The right to: buy the products you want and reject those you do not want.

21. Types of income Disposable Income – money left after paying for taxes; used to pay for necessities such as food, clothing, shelter. Discretionary Income – money left after paying necessities; used to satisfy wants

22. “let the buyer beware” Caveat emptor

23. Requires packages to list their ingredients according to the amount of each Food Drug and Cosmetic Act

24. Manufacturers must prove that their product is safe. Pure Food and Drug Act

25. Every package must have a label identifying its contents and weight Fair Packaging and Labeling Act

26. Provide information about businesses Warn consumers about dishonest business practices. Better Business Bureau

27. Right to a safe product Right to be informed Right to choose (competition) Right to be heard Right to redress (payment for damages) Consumer Bill of Rights

28. Make smart buying decisions Stay informed about businesses Report faulty products Make fair complaints Seek help for unsettled claims What responsibilities do consumers have?

29. Personal Economics Terms Budget – a record of the money you earn and spend Income – the money you make from working Expenses – things you spend money on, even saving accounts

30. The Budget Balanced budget – expenses = income Budget surplus – expenses < income Budget deficit – expenses > income

31. Borrowing money to pay for something now while promising to repay it later What is credit?

32. Banks, Credit unions, Finance companies Stores and businesses Where do people go to borrow credit?

33. To make large purchases Emergencies Luxuries Why should people save money?

34. Offers easy availability of funds Withdraw funds at any time without paying a penalty or fee Earn interest on savings What is the advantage of putting savings in a bank?

35. Putting your money at risk in order to make more money ***Stocks, bonds, and mutual funds carry more risk than savings accounts, but they can provide greater reward.*** What are investments? OR

36. What are other ways to invest money? • Stocks – partial ownership of a company • Dividend – payment of company earnings to investors • Bonds – lending money to a company or government • Mutual funds – money from many people is pooled and invested in a selection of stocks and bonds.