UNIT IV
CHAPTERS 10-11:
MONEY, BANKING, AND FINANCE
PAGE 31 – WHAT IS
MONEY?
1. What is money? Anything widely accepted as final payment for goods and
services.
2. What gives money value?
People are willing to accept it as final payment
for goods and services.
3. What is U.S. currency backed by? People’s trust that it is worth
something.
4. Who’s largely responsible for ensuring that people
continue to trust that our currency is valuable? The Federal Reserve
5. What does the term barter mean?
To exchange goods or services for
goods and services; a transaction
without money
PAGE 31 – WHAT IS
MONEY?
Directions: Work with your
group to define each of the
following terms. You have
nine minutes!
Functions of Money
1.
Medium of Exchange - A means through which products can be exchanged
2.
Store of Value - Holds value over time; can be saved for later use
3.
Standard of Value or Unit of Account -
Serves as standard by which economic
value can be measured
Characteristics of Money
1.
Divisible –Change can be made; $1 = 4 quarters or 10 dimes
2.
Portable –Small, light and easy to carry
3.
Acceptable - Users must agree it’s a valid medium of exchange
4.
Scarce - Limited quantity; absolutely necessary for value
5.
Durable - Sturdy enough to last through many transactions
6.
Stable - Purchasing power remains about the same over time
PAGE 32 – TYPES OF
MONEY
Directions: Create a poster on page 32 of your notebook
displaying the various types of money.
• Commodity Money
• Representative Money
• Fiat Money
Types of Money used in United States:
•
•
•
Use pages
291 – 293.
Currency
Demand Deposits
Near Money
Include a definition and a picture of an example for each. Your
poster must include color!
What is Money Video
PAGE 33 – BANKING IN
THE UNITED STATES
Use pages 296 to 302 to answer these questions:
1.
2.
3.
4.
What were some of the problems associated with state banks?
How did the National Banking Act of 1863 attempt to eliminate
the problems caused by wildcat banking?
Describe the Federal Reserve System in your own words.
What is the FDIC? Why was it created?
Use pages 304 to 310 to answer these questions:
5.
6.
7.
8.
Explain fractional reserve banking in your own words.
What were some of the provisions of the Banking Act of 1933?
How did the Financial Services Act of 1999 change the way that
banks competed?
How are debit cards and credit cards different?
PAGE 33 – BANKING IN
THE UNITED STATES
Use pages 296 to 302 to answer these questions:
1.
What were some of the problems associated with state banks?
- Each bank issued its own currency
- Not tied to gold or silver reserves
2.
- Not backed by federal gov’t
How did the National Banking Act of 1863 attempt to eliminate the
problems caused by wildcat banking?
3.
It set strict standards for national banks and provided for a national
currency backed by gov’t bonds to replace state bank notes.
Describe the Federal Reserve System in your own words.
4.
The Fed is a series of 12 regional banks that oversee our nation’s
money supply. They provide loans to banks, issues currency, etc.
What is the FDIC? Why was it created?
The FDIC stands for Federal Deposit Insurance
Corporation. It provides protection so that if banks fail,
people no longer lose all of their deposits.
PAGE 33 – BANKING IN
THE UNITED STATES
Use pages 304 to 310 to answer these questions:
5.
Explain fractional reserve banking in your own words.
A system in which banks are only required to keep a percentage of
deposit in reserve. Remainder is used to provide loans = new money.
6.
What were some of the provisions of the Banking Act of 1933?
7.
8.
Tightly regulated the amount of interest a bank could charge and the
amount of interest they could pay on loans, limited # of banks per state
How did the Financial Services Act of 1999 change the way that
banks competed?
Banks, insurance companies and investment companies are now all
allowed to provide banking services = increased competition
How are debit cards and credit cards different?
Debit cards are backed by money in a checking account.
Credit cards provide money loaned by bank that must be
repaid at an agreed upon interest rate.
PAGE 34 – ECON MATH
1. How do we figure out how much money is in circulation?
• Most common way to measure money are M1 and M2
• M1 includes currency, demand deposits, other checkable deposits
• M2 includes M1, savings accounts, small time deposits, money market
accounts.
PAGE 34 – ECON MATH
2. How do we calculate simple interest?
PAGE 34 – ECON MATH
PAGE 34 – ECON MATH
PAGE 34 – ECON MATH
PAGE 34 – ECON MATH
PAGE 34 – ECON MATH
PAGE 35 – THE STOCK
MARKET
Directions: Working with your shoulder partner, come up with a definition for the
term stock.
Why Buy Stock?
• Buy to earn dividends (share of company profits)
• Buy to earn capital gains (profit from resale of stock)
PAGE 35 – THE STOCK
MARKET
Types of Stock
• Common stock – Most common form of stock; gives shareholders voting
rights, share of profits
• Preferred stock – Less common; often part of incentive packages for
employment; gives shareholders share of profits, no voting rights
• investors get guaranteed dividends, paid off first if company
closes
PAGE 35 – THE STOCK
MARKET
What is a stock index?
• About half of U.S. households own
stocks
• Stock index measures, reports the
change in prices of a set of stocks
• measures individual stocks
and stock market as a whole
• Uses points to measure
changes in prices
• U.S. Indexes: Dow Jones Industrial
Average (DJIA), Standard & Poor’s
500 (S&P), NASDAQ Composite
• Global Indexes: Hang Seng, DAX,
Nikkei 225, TSE 300, FTSE 100
Japan
Germany
Canada
UK
PAGE 35 – THE STOCK
MARKET
Tracking the Dow
• Bull market - Prices rise steadily over a relatively long period
• Bear market - Prices decline steadily over a relatively long period
• 1972 to 2000 longest bull market in history; most last two to three years
Stock Market Video