WEDNESDAY EQ: What is money, who controls it, and what part does it play in our economy?!

THE THREE FUNCTIONS OF MONEY 1. a medium or form of exchange------can be traded for goods and services 2. a store of value-----money holds our wealth until we can use it 3. a measure of value-----it’s a measuring stick when something costs $5 we know what that means

THE TYPES OF MONEY Economist definition: anything people are willing to accept in exchange for goods. Our modern definition: coins and currency Coins=metallic forms of money like Currency = coins and paper money

WHAT GIVES MONEY VALUE? TRUST AND CONFIDENCE

FINANCIAL INSTITUTIONS Commercial banks-serve individuals and businesses, most people use them for their checking and savings account Savings and loan association (S&L)-used to just loan money to people buying homes, today they work a lot like a commercial bank Credit unions-they are not for profit but only serve members of groups that sponsor them such as business, labor unions, and businesses-----BETTER RATES BECAUSE THEIR GOAL ISN’T MAKING MONEY, BUT SERVING THEIR MEMBERS

HOW DO WE PROTECT OUR MONEY? FDIC-Federal Deposit Insurance Company-when financial institutions fail, they will protect your money up to 100,000 dollars This creates more consumer confidence which leads to more stable economic growth.

THE FEDERAL RESERVE The Central Bank of the United States. When banks need money, they borrow from the Federal Reserve.

THURSDAY Same EQ as yesterday. What is money, who controls it, and what part does it play in our economy?! Warm up: Take out book and turn to page 662 and take out your note sheet from yesterday. Today we will: Hand out vocabulary sheet for test tomorrow (open note test) Finish Monetary Policy Notes, watch a 10 minute clip from crash course, play a round of Quizizz on the chrome books, Practice constructed responses, bookwork review

LOOK AT THE GRAPHIC ON PAGE 662 How many reserve districts are there? What district do you live in? Who is on the board of Governors? The Federal Open Market Committee (FOMC) is part of the Fed that manipulates/controls the money supply, who makes up the committee?

FUNCTIONS OF THE FED 1.Banking Regulation 2.Consumer Credit

BANKING REGULATION If banks want to merge, they have to ask the fed and make sure it does not lessen competition and create monopolies or oligopolies. Oversees connections between American and foreign banks as well as international banks in America Enforces laws about consumer borrowing.

THE FED = THE GOVERNMENT’S BANK Holds the governments money Sells bonds and treasury bills Manages the nations currency

HOW MONETARY POLICY WORKS Monetary Policy-controlling the supply of money and the cost of borrowing money

CHANGING THE SUPPLY OF MONEY Tight Monetary Policy – makes credit expensive and in short supply in an effort to slow the economy. (helps with inflation) Loose Monetary Policy – makes credit inexpensive & abundant, to increase money in circulation. (helps with recession)

PAGE 664—LOOK AT THE DIAGRAM 1. What happens to the interest Rates when the money supply contracts?

TOOLS OF THE FEDERAL RESERVE Discount Rate – the amount of interest that commercial banks pay the FED for borrowed funds. Banks in turn set their lending rates for companies, individuals, home mortgages, and auto loans. Reserve Requirement – the amount of money banks must hold as security for loans. The higher the requirement, the less money banks have to loan. (expressed in a %) Buying & Selling Government Securities – bonds and loans the government has received from private individuals and banks.

MONETARY AND FISCAL POLICY SUMMARY

PRACTICE CONSTRUCTED RESPONSES The United States is in a period of economic contraction or a recession. Describe the type of monetary policy the Federal Reserve should use during this period and explain what effect this would have on the money supply. Describe a tool that the Federal Reserve could use to impact the money supply and explain how they would use this tool to solve a period of recession.

PRACTICE CONSTRUCTED RESPONSES The United States is considered to be a mixed economy. Identify and describe the two economic systems that the United States combines. For each of the two economic systems, give a specific example from the US economy that illustrates each.