We will be using Cornell Note Taking
Format Today!
Mo Money Mo Problems
One Step at a time to
Mo Success in
Economics
class!
Unit Five: Learning Objectives:
North Clackamas School District
Social Studies Priority Standards:
Econ 46. Distinguish between fiscal and
monetary policies and describe the role and
function of the Federal Reserve.
Lesson Two: Daily Learning Target
I Can define and explain in writing the
following key Economic concepts:
The Federal Reserve Bank
The Money Supply (M1 and M2)
What Is Money?
Money is anything that is
generally acceptable that
serves as a medium of
exchange, a unit of account,
and a store of value.
http://www.globalmortgage.com/images/ROLLOVERS/cash.jpg
http://www.crk.umn.edu/academics/Acct/CHECKS.gif
http://lfd.uiuc.edu/misc/visitors/coins.jpg
jpghttp://www.nassauboatcharters.com/travelerscheck.g
Cash
Coins
Travelers’
(Demand Deposits)
Checks
Checks
http://www.catlinbank.com/images/acct/WG-PASSBOOK.gif
http://www.pinnbank.com/gifs/photo_moneymarket.gif
Savings
Money
Accounts Market (CD’s)
http://www.cpaofc.com/images/mutualfunds.gif
Mutual
Funds
M2
[near money]
Savings Deposits, including
Money Market Deposit Accounts
M1
57%
[money or MS]
Currency
51%
Checking Accts
49%
M1[money]
is part of
M1
20%
Traveler’s
Checks $5 B
$1,676 billion
Small
Time
Deposits
14%
M2 [$8,463 billion]
http://www.federalreserve.gov/releases/h6/HIST/h6hist1.htm
Debit Card
[just a Federal Reserve note]
A bank is an institution for receiving,
keeping, and lending money.
Today, the Federal Reserve Bank
Oversees banking in the United States.
It was not always this way.
There was a time when banks were not
regulated by the Federal government.
Sometimes bankers made poor decisions
that bankrupted their banks.
Federalists vs. AntiFederalists
• At the founding of the nation, Federalists
wanted a strong, central bank.
• Anti-Federalists did not. Anti-Federalists
believed that a strong, central bank would
only loan to the rich and powerful.
• Federalists and Anti-Federalist just didn’t
agree.
Federalists, like
Alexander Hamilton,
believed that a
strong, central bank
was essential for the
new nation. A strong,
central bank could
prevent abuses in
banking.
Anti-federalists,
like Patrick Henry,
believed that
a strong, central
bank would have
too much power.
Wasn’t the
revolution about
limiting the power
of the government?
You see, banks
make money by
loaning money.
However, if banks
loan money to
people who
cannot repay
their loans,
then banks lose
money.
The Federal Reserve
Bank
• Eventually, it became clear that the nation needed
a strong, central bank to oversee banking in
America.
• A strong central bank could monitor banking in
the country and make sure that banks did not
make too many loans.
• A strong, central bank could hold bankers to
higher standards thereby protecting consumers.
In the case of banking, the Federalists
may have been right. A central bank
does prevent abuses in banking.
The Fed
• The Federal Reserve Bank is commonly
referred to as the “Fed.”
• The Federal Reserve Bank can make loans to
banks, raise or lower interest rates, and
require banks to hold adequate reserves.
• The Fed helps banks across America.
No Dough Bank
Kansas City
Minneapolis
Chicago
Cleveland
9
2
San
Francisco
7
12
10
4
8
5
6
11
3
Dallas
St. Louis
1
Boston
New York
Philadelphia
Washington, D.C.
(Board of Governors)
Richmond
Atlanta
A. Boston
B. New York
C. Philly
D. Cleveland
E. Richland
F. Atlanta
G. Chicago
H. St. Louis
I. Minneapolis
J. Kansas City
K. Dallas
L. San Francisco
th-G-Chicago (1)
7
1st-A-Boston (0)
2nd-B-New York (1) 8th-H-St. Louis (3)
3rd-C-Philadelphia (0) 9th-I-Minneapolis (1)
th-J-Kansas City (3)
th
10
4 -D-Cleveland (2)
5th-E-Richmond (2) 11th-K-Dallas (3)
th-L-San Francisco (4)
th
12
6 -F-Atlanta (5)
[thousands]
Destroy/Issue paper notes
The Fed clears 40%;
Banks clear rest electronically.
The Fed controls the banks’ ability to create new money to
ensure the economy doesn’t get too much money, nor too little.
Fed just right
Underfed
Overfed
1983
1980
+30%
$75.00
Money
And – so it is
with money.
Not too much,
$97.50 not too little.
Prices
Saving and Investing
• When a person saves money, he is storing
money.
• When a person invests money, he is trying to
significantly increase his money.
• Investing money involves greater risk but also
potentially greater gain.
People invest when they buy stocks
and bonds.
Stocks and Bonds
• When a person buys stock, he is buying
partial ownership in a corporation.
• When a person buys a bond, he is
loaning money to a corporation or
government.
There is an old
investment
Poem:
Stocks,
you own.
Bonds,
you loan.
Interest is the price of borrowed money.
Interest
• When money is deposited in a bank, the
customer receives interest on the money.
• A person who borrows money must pay
interest.
• Interest is the price of borrowed money.
Default
• When a person fails to pay back a loan, he
has defaulted on the loan.
• Defaulting on a loan leads to bad credit and
higher interest rates in the future.
• By defaulting, a person ruins his reputation
for repaying a loan.
Housing Boom and Bust
• From 2000 to 2006, house prices in the U.S.
skyrocketed. Many factors contributed to this
boom, but bank lending practices played a
major role.
• Deregulation changed banks from local
institutions into national megabanks. Instead of
collecting payments on a mortgage for 30 years,
banks began to sell these loans to other
financial institutions for a quick profit.
Housing Boom and Bust
• Banks became less interested in verifying
that clients could repay a mortgage and
more interested in making as many
mortgage loans as possible. The easy
money fueled the housing price bubble.
There are many financial intermediaries
to help people invest.
Financial
Intermediaries
• A financial intermediary transfers money
from savers to borrowers.
• Financial intermediaries can help a person
invest.
• Banks, finance companies, and mutual funds
are examples of financial intermediaries.
By investing in a variety of stocks and
bonds, a person reduces his risk.
The key is:
Diversification
• The idea of spreading out investments to
reduce risk is called diversification.
• Think of diversification as not putting all
your eggs in one basket!
• By investing in a variety of stocks and bonds,
the investor is less likely to lose his entire
investment.
Let’s reemphasize the main point here! Don’t “put
All your eggs in one basket!” Have a plan B (or C or D for
that matter).
We all know
the real path
to success &
happiness in
life is to?
Marry a
Kardashian!
Work on Your Project!