Policy #13: Banking Taxing, spending, and borrowing is monetary policy. Trading a Coke for a Sprite is also called bartering. Cutting taxes on the wealthy.

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Presentation transcript:

Policy #13: Banking Taxing, spending, and borrowing is monetary policy. Trading a Coke for a Sprite is also called bartering. Cutting taxes on the wealthy & businesses is also called the snow theory.

Why do we have banks? You need a safe place to keep your money – deposit in bank Who protects your deposits today? You need $ - banks will loan it to you w/interest

Balance Sheet: financial accounts Assets: anything owned (+) Liability: anything owed (-) Net worth: assets – liability Is a car an asset or a liability?

Balance Sheet Determine which is an asset and which is a liability: Credit card balance of $5,000 House that is worth $300,000 Mortgage of $275,000 Savings account with $2,000 What is your net worth?

Regulating Banks The Federal Reserve Board (The Fed) This is the bank for banks (the national bank) Board of Governors – appointed by Pres and confirmed by S

Functions of the Fed Regulates money supply Amount in circulation M1: currency & checking accts held by public M2: M1 + savings & money markets Helps control inflation Reserves: each bank must keep a certain amount of cash on hand or at the Fed

Determines interest rates: Fed loans $ to banks called discount rate: lower rate given to banks Banks loan out money to best customers at prime rate Today’s prime rate = 3.25% In 2006 = 8.00% prime rate Today’s discount rate = 0.75% In 2006 – 6% discount rate Why the change?

PP# 14: Balancing a Checkbook Check writing