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1. Economics

   Unit 5 Chapter 10
2. The 3 Uses of Money 1. Medium of Exchange: -anything that is used to determine value during the exchange of goods and services. -Without money, people would barter, which is the direct exchange of one set of goods for another
3. The 3 Uses of Money 2. Unit of Account: -a means for comparing the values of goods and services -comparison shopping for example.
4. The 3 Uses of Money 3. Store of Value: -Something that keeps it value if it is stored rather than used -doesn’t hold value during rapid inflation though
5. The 6 Characteristics of Money 1. Durability: -The ability to withstand the physical wear and tear that comes with being used over and over
6. The 6 Characteristics of Money 2. Portability: -The ability to take money with you as you go about your daily routine and to easily transfer it from one person to another. -Our currency is light and small.
7. The 6 Characteristics of Money 3. Divisibility: -The ability to be divided into smaller denominations, or units of value.
8. The 6 Characteristics of Money 4. Uniformity: -The same, in terms of what it will buy. -Helps us count and measure money accurately
9. The 6 Characteristics of Money 5. Limited Supply: -Helps keep the value of the currency since it is not readily available to everyone in society. -The Federal Reserve controls the supply of money in circulation for the U.S.
10. The 6 Characteristics of Money 6. Acceptability: -Everyone must be able to exchange the currency for goods and services
11. The 3 Sources of Money’s Value 1. Commodity Money: -Objects that have value in themselves and that are also used as money. -Ex: Salt, Cattle, Precious Stones -Usually only works in simple economies
12. The 3 Sources of Money’s Value 2. Representative Money: -Objects that have value because the holder can exchange them for something else of value -Ex: IOU’s, Gold/Silver Certificates/receipts
13. The 3 Sources of Money’s Value 3. Fiat Money: -Money that has value because the government has ordered that it is an acceptable means to pay debts. -Ex: Our money contains the phrase: “This note is legal tender for all debts, public and private”
14. History of American Banking A bank is an institution for receiving, keeping and lending money.
15. History of American Banking Before the Civil War: Banks were informal that merchants managed in addition to their regular trade. After the revolutionary war, leaders felt we needed a safe, stable, banking system. They didn’t agree on what that would look like. There were 2 camps:
16. History of American Banking Before the Civil War (pg 2): The Federalists, led by Alexander Hamilton who believed that a central bank was necessary for the U.S. to build healthy industries and trade. The Anti-federalists led by Thomas Jefferson supported a decentralized banking system that the states would establish and regulate.
17. History of American Banking Before the Civil War (pg 3): The federalist won at first and established the First Bank of the U.S. This bank: -Held govt. money collected in taxes -Issued Representative Money through bank notes (backed by silver and gold), etc. Hamilton was shot by V.P. Burr and the bank was not renewed in 1811.
18. History of American Banking Before the Civil War (pg 4): Without the central bank, state banks began issuing bank notes with no gold or silver to back it. To eliminate the chaos, the 2nd Bank of the U.S was chartered in 1816. It helped rebuild confidence, but many still opposed the idea.
19. History of American BankingDON’T WRITE THIS!! Before the Civil War (pg 5): President Jackson’s distrust of the bank led to its charter not being renewed in 1832. This triggered a free banking era called the “Wildcat” Era. State banks multiplied and this chaotic banking led to a number of problems like Bank Runs and panics, high rate of failure for banks located in “wildcat” areas of the frontier, fraud, and many different currencies.
20. History of American Banking Civil War: There were over 8,000 currencies when the Civil War broke out. To finance the war effort, the U.S. Treasury issued a currency called the Greenback, named for its color ink. The south issued currency supported from the sell of cotton.
21. History of American Banking Civil War (pg 2): The Federal Government issued the National Banking Acts of 1863 and 1864 to: 1. Charter new banks 2. Require banks to have adequate gold/silver reserves to cover their bank notes 3. The power to issue a single national currency and eliminate the others. This helped eliminate state currency and stabilize the money supply.
22. History of American Banking Post Civil War: In the 1870’s the nation adopted the Gold Standard, a monetary system in which paper money and coins are equal to the value of a certain amount of gold. This had 2 advantages: 1. It set a definite value for the dollar 2. It helped the govt. keep a limited supply of currency
23. History of American Banking 20th Century: The reforms of a single currency and the gold standard helped but didn’t provide a central decision-making authority to regulate the system. Such an authority could help banks provide funds for growth and manage the money supply. The Panic of 1907 proved this point.
24. History of American Banking 20th Century (pg 2): In 1913 The Federal Reserve Act created the Federal Reserve System, or Fed. The Great Depression brought about other reforms such as the Federal Deposit Insurance Corporation (FDIC) in 1933. Following the Great Depression, banks were heavily regulated by the government until the 1970’s.
25. History of American Banking 20th Century (pg 3): Deregulation of the banking industry happened in the 1970’s and this eventually led to the Savings and Loan Crisis of the 1980’s. In the 1990’s more and more banks began to merge.
26. Money Supply Money Supply is all the money available in the United States Economy M1: Money that people can gain access to easily and immediately to pay for goods and services. This means it has liquidity. (Cash) M2: Consists of all the assets in M1 plus additional assets that cannot be used as cash directly without being converted. Called Near Money.
27. Functions of Financial Institutions Store Money (safe vaults, FDIC) Save Money (savings, checking, CD’s, etc.) Loan Money (collect interest, fractional reserve banking, security to protect against default) Mortgages (loans used to buy real estate) Credit Cards
28. How banks make a profit Deposits from Customers Interest from borrowers (biggest source of revenue) Fees for services
29. Types of Financial Institutions Commercial Banks Savings and Loan Associations Savings Banks Credit Unions Finance Companies
30. Electronic Banking ATM’s Debit Cards Online Banking Automated Clearing Houses (ACH’s) Stored Value Cards

31. Economics

    Unit 5 Chapter 11
32. Saving and Investing Investment is the act of redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit. In order for investment to take place, the economy must have a financial system that allows the transfer of money between savers and borrowers
33. Saving and Investing When you save, you are lending money to borrowers. To show that you have a claim on your deposits, you get a certificate that shows a claim on your financial assets. Savers and investors are often linked by a financial intermediary who channels funds between them.
34. Saving and Investing Financial Intermediaries: Banks, Savings and Loans Associations and Credit Unions Finance Companies Mutual Funds Life Insurance Companies Pension Funds
35. Saving and Investing When investing, it is wise to spread out your investments to avoid risk. This is called diversification. Financial Intermediaries can help you invest and provide information to help you invest more wisely. This includes providing you information on your portfolio and on potential investment companies through their prospectus. This will help you get a better return on your investment.
36. Bonds and Other Financial Assets Bonds: certificates sold by a company or government to raise funds This is a form of low-risk investment but have a lower rate of return than other investments.
37. Bonds and Other Financial Assets Three (3) components to a bond: Coupon Rate: interest rate that bond insurer will pay to a bond holder Maturity*: the time at which payment to a bondholder is due. Par Value: the amount that an investor pays to purchase a bond and that will be repaid to the investor at maturity. *People often don’t wait for maturity so they care about the bond’syield, the annual rate of return on a bond if it were held to maturity.
38. Bonds and Other Financial Assets Types of bonds: Savings Bond: low-denomination bond issued by the U.S. government Treasury Bonds/Bills/Notes: Have different lengths of maturity, one of the safest due to being backed by the U.S. Government Municipal Bonds: issued by a state, or local government/municipality to finance improvements such as parks, highways, library, buildings, etc. Corporate Bonds: corporation issues this to raise money to expand its business. Monitored by the Securities and Exchange Commission (SEC) Junk Bonds: low-rated but potentially higher-paying
39. Bonds and Other Financial Assets Other types of Financial Assets: Certificates of Deposits (CD’s) Money Market Mutual Funds Financial Asset Markets: Capital Market-money lent for longer than 1 year Money Market-money lent for less than 1 year Primary Market-assets can be redeemed by original holder Secondary Market-assets can be redeemed by those it was resold to.
40. The Stock Market Besides Bonds, corporations can raise funds by issuing stock which is ownership in a corporation. It is issued in portions, called shares. Stocks are also called equities. Two ways to make a profit from stock: Dividends (a portion of profits paid to shareholders, usually 4 times a year.) Capital Gains-profit on selling stock in a corporation
41. The Stock Market Types of Stock: Income stock-pays dividends regularly in the year Growth Stock-reinvests earnings in corporation These types of stock can be classified in two (2) ways: Common Stock-owners receive one vote per share Preferred Stock-no voting but get dividends first
42. The Stock Market Stocks are traded through a stockbroker who works for a brokerage firm. Stocks are bought and sold on a stock exchange. The NYSE is the world’s largest exchange handling stock and bond transactions for the largest and most established companies. Over the Counter Markets (OTC’s) exchange stocks and bonds electronically. The American OTC market is called NASDAQ (National Association of Securities Dealers Automated Quotations)
43. The Stock Market Futures-contracts to buy or sell commodities at a specific date in the future at a price specified today. Options-Contracts that give investors the choice to buy or sell stock and other financial assets. Call Option-the option to buy stock at a specified time in the future. Put Option-the option to sell shares of stock at a specified time in the future.
44. The Stock Market Measuring Stock Performance: Bull Market: Steady rise in the stock market over time Bear Market: Steady drop in the stock market over time. The Dow: (Dow Jones Industrial Index) Index that shows how certain stocks have traded (Looks at 30 large blue chip companies) S&P 500: (Standard and Poor’s looks at 500 stocks)

45. Economics

    Unit 5 Chapter 16
46. The Federal Reserve System The Fed is overseen by a Board of Governors of 7 members with staggered 14 year terms. They are appointed by the President of the U.S. Must evenly represent all regions. The chairman of this board acts as the spokesman for the Monetary Policy of the country. This is the actions the Fed takes to influence the level of Real GDP and the rate of inflation in the country. All nationally chartered banks are required to join the Fed System.
47. There are 12 Federal Reserve Districts. Each has 1 Fed bank. We are in District 11, Federal Reserve Bank of Dallas
48. The Federal Reserve System The Fed does the following to serve Government: Serves as the banker for the U.S. Government- maintains a checking account for the Treasury Dept., processes payments for the IRS, social security, etc. Government Securities Auctions- sells, transfers, redeems, and auctions government bonds, bills, and notes/securities. Issues currency- and maintains level of circulation
49. The Federal Reserve System The Fed does the following to serve Banks: Check Clearing- the process by which banks record whose account gives up the money and whose account receives money when a check is written. Supervising Lending Practices- monitors bank reserves, ensure competition and bank lending practices. Lender of last resort-Can lend money to member banks at a discount rate. Usually banks lend to each other at the federal funds rate.
50. Money CreationRequired Reserve Ratio-ratio of reserves to deposits required of banks by the Fed
51. The Federal Reserve System The most important monetary policy tool is open market operations-the buying and selling of government securities to alter the supply of money. Monetarism is the belief that money supply is the most important factor in macroeconomic performance. Monetary policy alters the supply of money which affects interest rates. There are two types of policy. Both require good timing.
52. Monetary Policies Easy Money Policy Increases money supply. Lowers interest rates (encourages investment spending). Lower the RRR Used when economy is in contraction and the FED wants to stimulate or expand it. Tight Money Policy Reduces money supply. Raises interest rates causing investment spending to decline bringing real GDP down. Raise RRR Used when the economy is experiencing rapid expansion that may cause high inflation.
53. Policy Lags INSIDE LAGS Delays in implementing policy. Takes time to identify and recognize a problem. Once a problem has been recognized it takes time to implement appropriate policy. Outside Lags Time it takes for new policy to become effective. Fiscal policy, such as tax policy or government spending can be relatively short. Monetary policy affects business investment plans and may take years to implement.