UNIT IV CHAPTERS 10-11: MONEY, BANKING, AND FINANCE

PAGE 31 – WHAT IS MONEY? 1.What is money? 2.What gives money value? 3.What is U.S. currency backed by? 4.Who’s largely responsible for ensuring that people continue to trust that our currency is valuable? 5.What does the term barter mean? Anything widely accepted as final payment for goods and services. People are willing to accept it as final payment for goods and services. People’s trust that it is worth something. The Federal Reserve To exchange goods or services for goods and services; a transaction without money

PAGE 31 – WHAT IS MONEY? Functions of Money 1.Medium of Exchange - 2.Store of Value - 3.Standard of Value or Unit of Account - Characteristics of Money 1.Divisible – 2.Portable – 3.Acceptable - 4.Scarce - 5.Durable - 6.Stable - A means through which products can be exchanged Holds value over time; can be saved for later use Serves as standard by which economic value can be measured Sturdy enough to last through many transactions Change can be made; $1 = 4 quarters or 10 dimes Purchasing power remains about the same over time Limited quantity; absolutely necessary for value Users must agree it’s a valid medium of exchange Small, light and easy to carry Directions: Work with your group to define each of the following terms. You have nine minutes!

PAGE 32 – TYPES OF MONEY Directions: Create a poster on page 32 of your notebook displaying the various types of money. Commodity Money Representative Money Fiat Money Types of Money used in United States: Currency Demand Deposits Near Money Include a definition and a picture of an example for each. Your poster must include color! What is Money Video Use pages 291 – 293.

PAGE 33 – BANKING IN THE UNITED STATES Use pages 296 to 302 to answer these questions: 1.What were some of the problems associated with state banks? 2.How did the National Banking Act of 1863 attempt to eliminate the problems caused by wildcat banking? 3.Describe the Federal Reserve System in your own words. 4.What is the FDIC? Why was it created? Use pages 304 to 310 to answer these questions: 5.Explain fractional reserve banking in your own words. 6.What were some of the provisions of the Banking Act of 1933? 7.How did the Financial Services Act of 1999 change the way that banks competed? 8.How are debit cards and credit cards different?

PAGE 33 – BANKING IN THE UNITED STATES Use pages 296 to 302 to answer these questions: 1.What were some of the problems associated with state banks? 2.How did the National Banking Act of 1863 attempt to eliminate the problems caused by wildcat banking? 3.Describe the Federal Reserve System in your own words. 4.What is the FDIC? Why was it created? - Each bank issued its own currency - Not backed by federal gov’t - Not tied to gold or silver reserves It set strict standards for national banks and provided for a national currency backed by gov’t bonds to replace state bank notes. The FDIC stands for Federal Deposit Insurance Corporation. It provides protection so that if banks fail, people no longer lose all of their deposits. The Fed is a series of 12 regional banks that oversee our nation’s money supply. They provide loans to banks, issues currency, etc.

PAGE 33 – BANKING IN THE UNITED STATES Use pages 304 to 310 to answer these questions: 5.Explain fractional reserve banking in your own words. 6.What were some of the provisions of the Banking Act of 1933? 7.How did the Financial Services Act of 1999 change the way that banks competed? 8.How are debit cards and credit cards different? A system in which banks are only required to keep a percentage of deposit in reserve. Remainder is used to provide loans = new money. Tightly regulated the amount of interest a bank could charge and the amount of interest they could pay on loans, limited # of banks per state Banks, insurance companies and investment companies are now all allowed to provide banking services = increased competition Debit cards are backed by money in a checking account. Credit cards provide money loaned by bank that must be repaid at an agreed upon interest rate.

PAGE 34 – ECON MATH 1.How do we figure out how much money is in circulation? Most common way to measure money are M1 and M2 M1 includes currency, demand deposits, other checkable deposits M2 includes M1, savings accounts, small time deposits, money market accounts.

PAGE 34 – ECON MATH 2.How do we calculate simple interest?

PAGE 34 – ECON MATH

PAGE 35 – THE STOCK MARKET Directions: Working with your shoulder partner, come up with a definition for the term stock. Why Buy Stock? Buy to earn dividends (share of company profits) Buy to earn capital gains (profit from resale of stock)

PAGE 35 – THE STOCK MARKET Types of Stock Common stock – Most common form of stock; gives shareholders voting rights, share of profits Preferred stock – Less common; often part of incentive packages for employment; gives shareholders share of profits, no voting rights investors get guaranteed dividends, paid off first if company closes

PAGE 35 – THE STOCK MARKET What is a stock index? About half of U.S. households own stocks Stock index measures, reports the change in prices of a set of stocks measures individual stocks and stock market as a whole Uses points to measure changes in prices U.S. Indexes: Dow Jones Industrial Average (DJIA), Standard & Poor’s 500 (S&P), NASDAQ Composite Global Indexes: Hang Seng, DAX, Nikkei 225, TSE 300, FTSE 100 Japan UKCanada Germany

PAGE 35 – THE STOCK MARKET Tracking the Dow Bull market - Prices rise steadily over a relatively long period Bear market - Prices decline steadily over a relatively long period 1972 to 2000 longest bull market in history; most last two to three years Stock Market Video