 The units in the first quarter dealt with microeconomics. What is microeconomics ?
 “The study of economic behavior and decisionmaking in small units, such as households and firms.”
 The rest of the semester will deal mostly with macroeconomics. What is macroeconomics ?
 “The study of economic behavior and decisions in a nation’s whole economy.”

 “Surely there never was so evil a thing as money, which maketh cities into ruinous heaps, and banisheth men from their houses, and turneth their thoughts from good unto evil.”
–Sophocles
 “For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.” 1 Timothy 6:10
 “Few men have virtue enough to withstand the highest bidder.” –George Washington

 “So you think that money is the root of all evil? Have you ever asked what is the root of money?” –Ayn Rand
 “The lack of money is the root of all evil.”
–Mark Twain
 “Cash rules everything around me.
C.R.E.A.M., get the money. Dollar dollar bill y’all.” –Method Man

 Do you think “money is the root of all evil”?
Why/why not?

1.
List the six characteristics of money.
2.
Describe bartering and currency.
3.
Analyze commodity money and its different uses throughout history.

 How does money serve the needs of our society?
 Money provides means for comparing values of goods and services.
 Money also serves as a store of value .
 Without money, we wouldn’t be able to get the things that we need and want.

 The coins and paper bills people use as money are called currency .
 In the past, people have used many things as currency including cattle, salt, precious stones, fur, and dried fish.
 What else do people use as currency today?

 Without money, people acquire goods and services through barter .
 Many parts of the world still use bartering but as an economy becomes more specialized, it becomes too difficult to establish the relative value of items to be bartered.
 Money, therefore, makes exchanges much easier.

http://news.cnet.com/8301-17852_3-20011064-71.html

The Six Characteristics of Money
 The six characteristics of money are:
 Durability
 Portability
 Divisibility
 Uniformity
 Limited supply
 Acceptability

 Durability
 Money must be able to withstand the physical wear and tear that comes with being used over and over again.
 Portability
 Money must be easily carried by people.
Paper money and coins work because they are small and light.

 Divisibility
 Money must be easily divided into smaller denominations.
 Uniformity
 People must be able to count and measure money accurately.

Limited Supply and Acceptability
 Limited Supply
 Money would lose its value if there was an unlimited supply of it.
 This leads to inflation … something we’ll be covering soon.
 Acceptability
 Everyone in an economy must be able to take the objects that serve as money and exchange them for goods and services.

 Commodity money consists of objects that have value in and of themselves, like copper or apples, and that are also used as money.
 Why is commodity money impractical for use in our modern society?

Cigarettes - Russia, after fall of USSR
Musket balls -
Massachusetts, 1600s
Maize – Pre-Columbian
Americas
Salt – Middle East, ca.2000 BCE

 What do you think of when you think of money?
 What did people in ancient times use as money?
 What gives money its value
– in other words, why are people willing to take money as payment for goods and services?

 What makes a rare baseball card valuable?
 What if —all of a sudden—someone found 100,000 of what had been a rare baseball card? How do you think the increase in supply would affect the price (value) of the card? Why?
 How is this similar to the way an increase in the money supply affects the value of money?

 From what two sources does money get its value?
 A new Corvette sold in 1971 for $5,500. A
2015 Corvette sells for $70,000. Why is this?

1.
Learn how money came to be what it is today.
2.
Describe the three types of money.
3.
Analyze the sources of money’s values.

 Commodity money consists of objects that have value in and of themselves, like copper, guns, or apples, and that are also used as money.
 We discussed salt, cigarettes, musket balls, and maize used as commodity money in different times/eras.

 Representative money currency that has value because it can be exchanged for something else of value.
 Early representative money took the form of paper receipts for gold and silver.
 People left their gold in goldsmith’s safes and would carry paper ownership receipts to show how much gold they owned.

 United States money today is fiat money , which has value because a government has decreed that it is an acceptable means to pay debts.
 Citizens have confidence that the money will be accepted.
 Because the Federal Reserve controls the supply, it remains in limited supply , which makes it valuable.

http://www.youtube.com/watch?v=18LYC-bQfeY

 List the advantages and disadvantages of fiat money.
 What are the potential costs to the national economy or society when we use fiat money instead of commodities or representative money?
 What are the potential benefits of relying on fiat money? Why is it better than other forms of money?
 3 advantages & 3 disadvantages

http://www.nasdaq.com/article/bitcoinfrequently-asked-questions-cm478328

 First federally-printed fiat money, the
“greenback,” printed in 1862 to pay for the Civil
War.
 1878-1933 – U.S. currency backed by gold.
 1933-1971 – U.S. currency backed by silver.
 1971-Today
– All U.S. currency is “legal tender,” or fiat money.

‘ M U R I C A

 During the first part of our nation’s history, local banks were informal businesses that merchants managed in addition to their regular trade.
 After the American Revolution, the new nation’s leaders often disagreed on the ways to establish a safe, stable banking system.
 James Madison (1809-1817)  Federalist
 Andrew Jackson (1829-1837)  States’ Rights

 As state-charted banks flourished from
1837 to 1863, the sheer number of banks gave rise to a variety of problems, including:
 Bank runs and panics (a.k.a., recessions)
 Wildcat banks that were inadequately financed and had a high rate of failure
 Fraud
 Many different currencies

 The National Banking Acts of 1863 and
1864 gave the federal government the power to:
 Charter banks
 Require that banks hold an adequate amount of gold and silver reserves
 Issue a national currency
 In 1878, the nation adopted the gold standard, which set a definite value for the dollar.

Banking and the Great Depression
 President Franklin Roosevelt acted to restore the banking system in the 1930s by establishing the FDIC (Federal
Deposit Insurance Corporation), which insured customer deposits if a bank failed .
 FDR restricted private ownership of gold so the
Federal Reserve could adequately control the money supply.
 The federal government also began regulating banks much more heavily than in the past .

 In the late 1970s and 1980s, Congress passed laws to deregulate several industries.
 This deregulation led to a crisis for the
Savings and Loan industry, which ended up investing in risky commercial ventures.
 Led to the largest banking disaster since the
Great Depression
 Between 1985-1995, over 1,000 S&L with total assets of over $500 billion failed.
 Total cost to taxpayers=$125 billion

 Read pages 256-263 in the textbook.
 Define bank run , gold standard , foreclosure
 On page 274 , answer questions:
 1a, 1b, 1c, 2a, 2b, 3a, 3b

 What do you know about the financial crisis of 2008-2009? What is a recession?
What were some of the consequences of the crisis?

 Define the Great Recession.
 Explain the economic conditions that created the Great Recession.

“Understanding the Financial Crisis”
 http://www.youtube.com/watch?v=h4
Ns4ltUvfw
“Reasons Behind the Great Recession”
 https://www.youtube.com/watch?v=B zc8ZO5XYyo

The Sub-Prime Mortgage Crisis
 In early 2000s, mortgage companies and banks began to loan people money who could not afford to pay these loans back.
 When people began defaulting on their home loans, it triggered a domino effect that hit banks and investors hard starting in 2008.
 It was the worst worldwide financial crisis since the Great Depression and sent the U.S into a recession it is still trying to recover from.
 Often called “The Great Recession”

“The Great Recession Explained in 3
Minutes”
 https://www.youtube.com/watch?v=D z_7ikEc26w

 You are a reporter and have been asked by your editor to write a brief news article for a popular magazine about the Great Recession.
 Describe the events leading up to and consequences of the Great Recession in roughly two paragraphs
 Format your paper like a news article.
 Some questions to answer: How did it happen?
Who were the key groups or institutions involved? What was the outcome? Etc.

• How much do you know about how banking works? Scale of 1-10
• What services that banks provide do you think you will use within the next ten years?

1.
Describe the basic functions of financial institutions.
2.
Explain what factors consumers should consider in evaluating credit cards.


 Financial institutions:
 Make loans to businesses
 Provide mortgages to prospective home buyers
 Issue credit cards

Functions of Financial Institutions
 Storing money
 They provide a safe place to store money
 Saving money
 They offer people ways to save money through:
 Savings accounts
 Checking accounts
 CDs (Certificate of Deposit) , which offer a guaranteed rate of interest but cannot be removed until after a specified period of time.

 Financial institutions lend money to consumers and charge interest on those loans.
 What is interest ?
 The cost of borrowing money
 Loans help consumers:
 Buy homes
 Pay for college
 Start and grow businesses

 How do credit cards work??
 Credit cards entitle their owners to buy goods and services based on the owners promise to pay.
 The amount you can borrow is tied to your credit history and how much money you make.

 Banks usually charge high interest rates on credit cards.
 Consumers are evaluated on how much they can borrow and at what rate based on their credit history and credit score
 Having a credit card has increasingly become a necessity instead of a luxury .

The average American household has a credit card debt obligation of
$15,252

 http://www.youtube.com/watch?v=qAQnIw
Seih8
 http://www.youtube.com/watch?v=GDbGn x8IP4Y

1.
Americans are prohibited from obtaining a credit card before age _____.
2.
What does APR stand for? What does it measure?
3.
What is one good way to avoid a mountain of credit card debt?

List one service that a bank provides that you think you will use within the next ten years (checking account, loan, credit card, etc.)
How will the bank make money by providing that service? What do you get in return?

1.
Identify how financial institutions make money.
2.
Describe the different types of financial institutions.

Banking Explained – Money and Credit https://www.youtube.com/watch?v=fTTGALaRZoc

 Many banks loan money to other financial institutions and individuals.
 A banking system that only keeps a fraction of its funds on hand and lends out the rest is called fractional reserve banking .

 A mortgage is a specific type of loan that is used to buy real estate.
 Banks issue credit cards and lines of credit
 Other types of loans include: car, small business, home improvement, etc.

Types of Financial Institutions
 Jigsaw Activity  Pages 269-271
 “Jigsaw” groups of 4-5
 “Expert” topics:
 Commercial Banks
 Savings and Loan Associations
 Credit Unions
 Finance Companies
 Meet with “Expert” group, then report your findings back to your “Jigsaw” group

 Commercial Banks
 Offer checking accounts, accept deposits, and make loans
 Savings and Loan Associations

Allow people to save up and borrow enough for their own homes
 Credit Unions
 Cooperative lending associations established for particular groups
 Finance Companies
 Make installment loans to consumers

 In the U.S., 12 million people borrow nearly
$50 billion a year through payday loans.
 Average amount borrowed: $375
 Average amount owed: $800
 Estimated average APR on payday loans: 385%
 The rates charged on payday loans can be up to
35 times those charged on credit card loans and
80 times the rates charged on home mortgages.
Source: BusinessInsider.com

 money supply: all the money available in the United States economy
 fractional reserve banking : a banking system that keeps only a fraction of its funds on hand and lends out the remainder
 mortgage : a specific type of loan that is used to buy real estate

 credit card : a card entitling its owner to buy goods and services based on the owner’s promise to pay for those goods and services
 interest : the price paid for the use of borrowed money
 principal : the amount of money borrowed