Economics Unit 3

Fiscal Policy A. To try to reduce high unemployment, the government uses fiscal policy. B. Fiscal policy options: Expansionary 1. Cut taxes- gives people more money to spend and thus increase purchases, hopefully prompting businesses to hire more workers and increase production. 2. Increase government spending- buy more goods and services, increasing employment/ incomes and hopefully convincing businesses to hire more workers and boost production.

III. Fiscal Policy C. Fiscal policy options: Contractionary 1. Raise taxes- gives people less money to spend and thus decreases purchases, hopefully prompting businesses to reduce prices. 2. Decrease government spending- buy less goods and services, decreasing employment/ incomes and hopefully convincing businesses to decrease prices.

I. Money and Banking A. Functions of money 1. Medium of exchange 2. Measure of value 3. Store of value

I. Money and Banking B. Characteristics of money 1. Durability 2. Portability 3. Acceptability 4. Divisibility 5. Stability in value Does the dollar meet these characteristics?

I. Money and Banking C. Types of money 1. Legal tender 2. Commodity money 3. Representative money 4. Fiat money 5. Currency- coins and paper money Currency- coins and paper money 6. Checkbook money/demand deposits 7. Time deposits and savings deposits

I. Money and Banking D. Development of banks and banking 1. Commercial banks 2. Savings and loans 3. Credit unions 4. Bank services a. checking b. savings c. safety deposit boxes d. loans e. overdraft checking f. automatic deposit g. automatic payment

I. Money and Banking E. Deposit Insurance 1. F.D.I.C. – Federal Deposit Insurance Corporation: A government agency established by congress in 1933 to insure bank deposits against bank failures 2. Savings Association Insurance Fund – protects savings and loan associations 3. National Credit Union Share Insurance Fund – protects credit unions

I. Money and Banking F. Electronic Banking Services 1. Electronic Funds Transfer (EFT) 2. Automated Teller Machines (ATM)

II. The Federal Reserve System and Monetary Policy C. How banks create money 1. Expansion of money supply: Process by which the granting of credit (loans) by banks results in an increase in the money supply. Loans are made from excess reserves. 2. Fractional reserve banking: A banking system based on the provision that only a fraction of a bank's deposits must be held as reserves.

II. The Federal Reserve System and Monetary Policy D. Monetary Policy: the actions taken by the federal reserve system to control the nation's money supply and interest rates in order to achieve desired economic objectives

II. The Federal Reserve System and Monetary Policy 1. Instruments of Monetary Policy a. Reserve requirements: A rule that stipulates the percentage of deposits that must be kept as reserves to back up those deposits. b. Discount rate: The rate of interest that federal reserve banks charge banks and other financial institutions for loans. c. Open-market operations: The buying and selling by the FED of government securities in the open market in order to control the money supply.

II. The Federal Reserve System and Monetary Policy 2. Tight-money policy - A policy restricting the availability of credit and forcing interest rates up a. FED increases discount rate on loans to member banks b. FED increases reserve requirements for member banks so they have less excess reserves to loan c. FED sells government securities to banks

II. The Federal Reserve System and Monetary Policy 3. Easy-money policy - A policy of expanding the money supply and reducing interest rates a. FED decreases discount rate on loans to member banks b. FED decreases reserve requirements for member banks so they have more money to loan c. FED purchases government securities from banks

International Trade and Economies

Types of Economies (Review) Traditional – Command – Market – Mixed –

International Trade Arguments For Trade Barriers 1. Infant Industry: An argument used to justify a temporary tariff to allow new industries to learn how to produce more efficiently 2. Employment Protection: Keep jobs at home 3. National Security: Not allow certain technologies to be sent to unfriendly countries such as computers, parts for missiles

International Trade Balance of Trade Issues 1. Free Trade Agreements: Eliminate trade restrictions between countries including tariffs a. North American Free Trade Agreement b. European Union 2. United States has trade deficit: Import more than export.

International Trade World Trade Organization (WTO) 1. Oversees trade among nations. 2. Organizes negotiations about trade rules and helps countries trying to develop their economies. 3. Critics say that WTO policies favor corporations at the expense of workers, the environment, and poor countries

Exchange Rates A. Exchange Rates link domestic prices with foreign prices. 1. They enable you to translate the price of foreign products into dollars (or other currencies) 2. Example, price of 1 Euro in $s is 1.40  B. Foreign exchange markets enable international transactions to take place by providing markets for the exchange of national currencies Exports create a demand for dollars and a supply of foreign money. Imports cause the opposite.

Exchange Rates Change in Floating Exchange Rates 1. Depreciation means the value of a currency has fallen, (i.e. it takes more units of that country’s currency to buy another country’s currency) 2. Appreciation means the value of a currency or its purchasing power has risen (it takes less of that currency to buy another country’s currency)

V. Exchange Rates D. Fixed exchange rates are those that are pegged to some set value, such as gold or the U.S. dollar. Value of currency does not change.

The United Nations A. Internationalism: the idea that nations should cooperate to promote common aims. B. Brief History of UN 1. League of Nations 2. Charter signed in 1945 C. The UN’s main purposes are to maintain international peace, develop friendly relations among nations, promote justice and cooperation, and seek solutions to global problems

The United Nations E. Basic Information 1. The UN now has 192 members and is headquartered in New York 2. All UN members belong to the General Assembly. a. The Assembly meets regularly to debate international issues and vote based on majority 3. The Security Council is the UN’s peacekeeping arm. a. It has 5 permanent members: the US, Britain, Russia, France, and China. b. It has have 10 nonpermanent members for 2-year terms c. Decision require 9 “yes” votes (including all of the 5 permanent members)

The United Nations 4. The Secretariat carries out daily business led by the secretary-general, the UN’s chief executive officer. a. secretary-general serves 5 year terms with a maximum of 2 terms F. The International Court of Justice is the UN’s judicial arm 1. Headquartered in The Hague, the Netherlands 2. 15 justices hear disputes between nations 3. no power to enforce its rulings, must rely on cooperation from nations

Secretary-General Ban Ki-moon (Republic of Korea)

The United Nations G. The World Health Organization works to improve the level of health across the globe and the Economics and Social Council promotes higher standard of living around the world, including improvements in health, education, and human rights.