JordanCody G.MaciBrettDylanAnmol Brandon Bathroom CoraSierra Attndnc. Alex B.GabrielleDanielle J.Charles Will Boss Courtney J. CliffAndrewNicoleHannahAdam Cody J.Alex H.Michael E.RachaelRyan SarahCierraHunterKristen Michael D.KyleEmmaTanner Paperw.

Eric Clapton + Duane Allman = Derek and the Domino’s Day

HW due Wednesday Pg 290 #2, 5, 6, 7 ALSO Handout for those absent Friday.

Tomorrow Monetary Policy Storyboard/Art Contest Bond Quiz Monetary Policy Computer Game

Week Plan Today: M22/23---financial system/bonds, and money Tuesday: bond quiz, monetary policy drawing and game Wednesday: M26/27 Fed structure, monetary policy, M1M2 quiz, (HW due) Thursday: Fed/monetary policy quiz, M25 T- accounts Friday: M25 T-accounts and money multiplier

Reading Assignments M22, 23---read tonight M26-read Tuesday M27-read Wednesday M25-read Thursday (we’re skipping M24)

Assets/Liabilities Asset: Financial asset: Physical asset: Liability:

3 Tasks of a Financial System 1) 2) 3)

Types of Financial Assets Loans Stocks Bonds –How bonds work –Yield, Coupon Amount, & Price

New Call and Response Call: Bonds are… Response: Loans!

Bonds aka Securities

Bond Example As a Class. $1,000 bond $10 annual coupon 5 year term What’s the yield?? What’s the total amount to be paid back??

Partner Work Everyone should write their answers/work on a sheet of paper. One paper per student.

Seating Chart 4th (Front of Class) JordanCody G.MaciBrettDylanAnmol Brandon Bathroom CoraSierra Attndnc. Alex B.GabrielleDanielle J.Charles Will Boss Courtney J. CliffAndrewNicoleHannahAdam Cody J.Alex H.Michael E.RachaelRyan SarahCierraHunterKristen Michael D.KyleEmmaTanner Paperw. windowwindow

Appointments windowwindow

Partner Work Everyone should write their answers/work on a sheet of paper. One paper per student.

Bond Example #1 $3,000 bond $30 annual coupon 10 year term What’s the yield?? What’s the total amount to be paid back??

Bond Example #2 $10,000 bond $150 annual coupon 5 year term What’s the yield?? What’s the total amount to be paid back??

Bond Example #3 $15,000 bond $75 annual coupon 10 year term What’s the yield?? What’s the total amount to be paid back??

Bond Example #4 Joe sells you a bond for $300 with a 3% yield. What’s the annual coupon amount?

Bond Example #5 Joe sells you a bond with a coupon amount of $400 & a 2% yield. What price did you pay for the bond?

Bond Example #6 The price of a bond is $1,000 and it has an annual coupon of $200. What is the yield?

Bond Example #7 The price of a bond with no expiration date is originally $1,000 and has a fixed annual interest payment of $200. If the price of the bond then falls by $100, what will be the interest rate yield to a new buyer of the bond?

Bond Example #8 The price of a bond with no expiration date is originally $900 and has a fixed annual interest payment of $200. If the price of the bond then falls by $100, what will be the interest rate yield to a new buyer of the bond?

Bonds can be sold before they mature.

Bond Prices and Yields relationship

Bond Prices and Interest Rates …on other investments like stocks, bank accounts, and real estate.

Who’s bond do you want???

Types of Financial Assets Loans Stocks Bonds –How bonds work –Yield, Coupon Amount & Price –Bond prices and bond yields –Bond prices and interest rates

Financial Intermediaries Mutual Funds Finance Companies Life Insurance Companies Banks Credit Unions

M23 Money

3 Functions of Money

Ways to Exchange Barter Commodity money Fiat money

Measuring the Money Supply M1 M2

Measuring the Money Supply M1: currency, checkable deposits, traveler's checks M2: M1+savings (noncheckable) deposits+small (less than $100k) time deposits+money market funds

aka’s

Item Billions of Dollars ___________________________________________________________ Checkable deposits1,775 Traveler’s checks5 Small time deposits345 Treasury notes56 Large time deposits1230 Noncheckable savings deposits945 Money market deposit accounts256 Credit card balances204 Class example

Partner work, continued

#9 M1, #10 M2---show math for each Item Billions of Dollars ___________________________________________________________ Small time deposits349 Large time deposits1340 Noncheckable savings deposits652 Money market deposit accounts331 Checkable deposits1,579 Currency held by public61

#11 M1, #12 M2---show math for each Item Billions of Dollars ___________________________________________________________ Checking accounts1,979 Savings accounts763 Money market funds84 Treasury notes71 CD’s > $100k1996 CD’s less than $100k288 Traveler’s checks2

Item Billions of Dollars ___________________________________________________________ Cold hard cash26 CD’s > $100k8,933 Savings accounts646 Money market funds115 Checkable deposits2,334 Small time deposits719 #13 M1, #14 M2---show math for each

Sam Cooke Day

Homework Turn-In

Picture Time 20 Minutes To Finish

FRQ Review

Money Quiz Part 1: on clickers (8 questions)

What is the most widely accepted definition of money (M1)? a) Currency b) Currency plus checkable deposits c) Currency plus demand deposits plus savings deposits d) Currency plus demand deposits plus savings deposits plus short-term government bonds

Which definition(s) of the money supply include(s) only items which are directly and immediately usable as a medium of exchange? a. M1 b. M2 c. M3 d. M1 and M2

The federal backing for the money in the United States comes from: a. providing sufficient quantities of precious metals such as gold and silver to cover the amount of paper money in circulation b. control over the money supply designed to keep the value of money relatively stable over time c. pledging physical assets, such as land, natural resources, and public buildings as collateral for outstanding currency d. protecting all checkable deposits at financial institutions with deposit guarantees

Maggie Gearhart deposits $200 in currency in her checking account at a bank. This deposit is treated as: a. a subtraction of $200 from the money supply because the $200 in currency is no longer in circulation b. an addition of $200 to the money supply because of the creation of a demand deposit of $200 c. an addition of $200 to the money supply because the bank holds $200 in currency and the checking account has been increased by $200 d. no change in the money supply because the $200 in currency has been converted to a $200 increase in demand deposits

The functions of money are to serve as a: a. resource allocator, method of accounting, and a means of income distribution b. measure of value, store of value, and medium of exchange c. determinant of consumption, investment, and government spending d. factor of production, exchange, and aggregate supply

Which of the following is NOT a function of fiat money? (A) A standard of deferred payment (B) A unit of account (C) A source of intrinsic value (D) A store of value (E) A medium of exchange

ItemBillions of Dollars ________________________________________________ Small time deposits350 Large time deposits1350 Noncheckable savings deposits650 Traveler’s checks1 Money market deposit accounts300 Checkable deposits1,600 Currency held by public50 What is M1? A)$1,651B) $1,301C) $1,650 D) $1,300E) $2,951

ItemBillions of Dollars ________________________________________________ Small time deposits350 Large time deposits1350 Noncheckable savings deposits650 Traveler’s checks1 Money market deposit accounts300 Checkable deposits1,600 Currency held by public50 What is M2? A)$1,651B) $1,301C) $1,650 D) $2,301E) $2,951

Money Quiz Part 2 On paper, 5 questions. 2 sheets of paper. Use scratch paper to cover your answers.

1) What is M1? Item Billions of Dollars ___________________________________________________________ Small time deposits1 Large time deposits1 Noncheckable savings deposits1 Money market deposit accounts1 Checkable deposits1 Cash in circulation1 Traveler’s checks1

2) What is M2? Item Billions of Dollars ___________________________________________________________ Small time deposits1 Large time deposits1 Noncheckable savings deposits1 Money market deposit accounts1 Checkable deposits1 Cash in circulation1 Traveler’s checks1

3) The size of M1 is Item Billions of Dollars ___________________________________________________________ Checking accounts1,979 Savings accounts763 Money market funds84 Federal Reserve notes71 CD’s > $100k1996 CD’s less than $100k288

4) The size of the M1 money supply is ItemBillions of Dollars _____________________________________________________ Checkable deposits1,775 Small time deposits345 Currency held by public401 Large time deposits1230 Noncheckable savings deposits945 Money market deposit accounts256 Traveler’s checks5

5) The size of the M2 money supply is ItemBillions of Dollars _____________________________________________________ Checkable deposits1,775 Small time deposits345 Currency held by public401 Large time deposits1230 Noncheckable savings deposits945 Money market deposit accounts256 Traveler’s checks5

Swap/Grade

The Federal Reserve Our nation’s central bank. They control the money supply.

Federal Reserve (the “Fed”) Structure and Functions

Federal Reserve Bank – Atlanta District

What are banks good for? What services do banks provide?? Banks: hold our money lend us money process check and debit card transactions

Federal Reserve The nation’s ____________ bank. A ________ for __________ Quasi-_______ Board of ____________: supervises/regulates Fed Federal _______ ________Committee: buys/sells _____ The Fed… ______ _for banks (& government) ______ _to banks clears _______ _________ requirements Reserve requirements mean we have a ____________ _______________ banking system.

Federal Reserve Notes Privately owned, publicly run Federal Open Mkt Committee: buys/sells bonds The Fed… holds $ for banks (& government) lends $ to banks clears checks reserve requirements –Reserve requirements mean we have a ____________ _______________ banking system.

Bank Reserves (total):

New Formula Excess reserves =

Board of Governors Simulation

Tools of the Federal Reserve Reserve requirement

Strong-Like-Bull Rule To get the economy going, Bu.L.L.L. (Buy bonds, Lower federal funds rate, Lower discount rate, Lower reserve requirement)

Bonds Buying bonds makes money supply… Selling bonds makes money supply…

Interest Rates (the price of money)

Picture This (sad banker) (growing money supply)

Banks LOWER interest rates when money supply increases.

(Federal Funds Rate)

Monetary Policy (the Fed, $ supply, & interest rates) Easy (makes economy grow) 1) 2) 3) 4) 5) 6) Tight (fights inflation) 1) 2) 3) 4) 5) 6)

Monetary Policy (the Fed, $ supply, & interest rates) Easy (makes economy grow) 1) Fed buys bonds 2) $$ supply goes up 3) interest rates fall 4) people borrow more 5) people spend more $$ 6) RGDP goes up Tight (fights inflation) 1) Fed sells bonds 2) $$ supply goes down 3) interest rates rise 4) people borrow less 5) less $$ circulating 6) inflation goes down

(Federal Funds Rate)

Monetary Policy Handout

Partners

2 nd Seating Chart 3 (Front of Class) RachaelScottShelby Smith Paperw. HannahZach P.Heather Zach S. Bathroom JoshuaDavidWilliamJuhiAmanda Attendanc Shelby Stephens EmilyGarrett Boss AddieDanielle windowwindow

Seating Chart 4th (Front of Class) JordanCody G.MaciBrettDylanAnmol Brandon Bathroom CoraSierra Attndnc. Alex B.GabrielleDanielle J.Charles Will Boss Courtney J. CliffAndrewNicoleHannahAdam Cody J.Alex H.Michael E.RachaelRyan SarahCierraHunterKristen Michael D.KyleEmmaTanner Paperw. windowwindow

Appointments windowwindow

Clean sheet of paper.

Reserve requirements example 1: Bank receives new deposit of $100. Reserve requirement is 15%. What is the amount of new loans this single bank can make, as a result of this new deposit?

Reserve requirements example 2: Bank receives new deposit of $2000. Reserve requirement is 5%. What is the amount of new loans this single bank can make, as a result of this new deposit?

Reserve requirements example 3: Bank receives new deposit of $500. Reserve requirement is 5%. What is the amount of new loans this single bank can make, as a result of this new deposit?

Reserve requirements example 4: Assets Total Reserves: $15,000 Securities: $70,000 Loan: $15,000 If the reserve requirement is 12 percent and the bank does not sell any of its securities, the maximum amount of additional lending this bank can undertake is????? Liabilities Demand Deposits: $100,000

Reserve requirements example 5: Assets Total Reserves: $15,000 Securities: $70,000 Loan: $15,000 If the reserve requirement is 12 percent and the bank does not sell any of its securities, the maximum amount of additional lending this bank can undertake is????? Liabilities Demand Deposits: $100,000

Reserve requirements example 6: Assets Total Reserves: $15,000 Securities: $70,000 Loan: $15,000 If the reserve requirement is 12 percent and the bank does not sell any of its securities, the maximum amount of additional lending this bank can undertake is????? Liabilities Demand Deposits: $100,000

Reserve requirements example 7: A bank has deposit liabilities of $50,000 and a required reserve ratio of 20 percent. This bank’s required reserves = __________.

Reserve requirements example 8: A bank has excess reserves of $5,000 and deposit liabilities of $50,000 when the required reserve ratio is 20 percent. This bank has total reserves of ___________.

Reserve requirements example 9: A bank has deposit liabilities of $50,000 and a required reserve ratio of 25 percent. This bank’s required reserves = __________.

Reserve requirements example 10: A bank has excess reserves of $5,000 and deposit liabilities of $50,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 this bank can lend a maximum of __________.

Reserve requirements example 11: Assume that the required reserve ratio is 25%. If a commercial bank has $3 million cash in its vault, $4 million in short-term government securities, $8 million on deposit at the Fed., and $5 million in demand deposits, its total reserves equal

Reserve requirements example 12: If the reserve ratio is 20 percent, what level of excess reserves does a bank acquire when a business deposits a $25,000 check drawn on another bank?

Think of a dam… A dam controls the flow of water downriver. Releasing too much water would cause flooding. Too little water would cause a drought.

The Fed is like a dam... & the river is the $ supply. Too much $ causes inflation. Too little $ causes a recession. Federal Reserve Money Supply

Run the Fed Game

1) What is M1? Item Billions of Dollars ___________________________________________________________ Small time deposits1 Large time deposits1 Noncheckable savings deposits1 Money market deposit accounts1 Checkable deposits1 Cash in circulation1 Traveler’s checks1 A) 2B) 3C) 4D) 5E) 6

2) What is M2? Item Billions of Dollars ___________________________________________________________ Small time deposits1 Large time deposits1 Noncheckable savings deposits1 Money market deposit accounts1 Checkable deposits1 Cash in circulation1 Traveler’s checks1 A) 3B) 4C) 5D) 6E) 7

3) The size of M1 is Item Billions of Dollars ___________________________________________________________ Checking accounts1,979 Savings accounts763 Money market funds84 Treasury notes71 CD’s > $100k1996 CD’s less than $100k288 Traveler’s checks2 A) $2,052 B) $1,981C) $2,340D) $2,050E) $1,979

4) The size of the M1 money supply is ItemBillions of Dollars _____________________________________________________ Checkable deposits1,775 Small time deposits345 Currency held by public401 Large time deposits1230 Noncheckable savings deposits945 Money market deposit accounts256 Traveler’s checks5 a) 1,775 b) 1,831 c) 2,176 d) 2,181

5) The size of the M2 money supply is ItemBillions of Dollars _____________________________________________________ Checkable deposits1,775 Small time deposits345 Currency held by public401 Large time deposits1230 Noncheckable savings deposits945 Money market deposit accounts256 Traveler’s checks5 a) 3,471 b) 3,727 c) 1,546 d) 4,957