1. CIRCULAR FLOW Markets Markets are places that allow for the exchange of money for goods or services. Markets make it easier to obtain goods and services. There are two kinds of markets in circular flow.

2. MARKETS Resource Market Resource Market –A resource market is a place where businesses pay money in exchange for labor in order to make goods or provide services. –Resource markets have people being paid for doing human labor –A resource market is where resources are sold.

3. MARKETS Output market Output market –An output market is where businesses charge individuals (households) money for finished goods or services. –This is where goods and services are sold.

4. FINANCIAL INSTITUTIONS Definitions- Intermediary- Something that exists between buyers and sellers and savers and borrowers Savers- Those who hold onto their money as opposed to spending it. Savers make deposits. When money is put in the bank, savers collect interest. borrowers- those who borrow money and agree to pay it back with interest. Deposits- money placed in a savings or checking account in the bank

5. Loans- money borrowed from the bank by borrowers and returned with interest to pay the savers Loans- money borrowed from the bank by borrowers and returned with interest to pay the savers Interest- money paid in addition to money borrowed. This money is paid for the use of the banks money. Interest- money paid in addition to money borrowed. This money is paid for the use of the banks money. –The interest you have to pay is your opportunity cost!

7. BANKS Federally or State chartered financial institution. Federally or State chartered financial institution. –The government must permit you to start a bank and you must agree to follow the government’s guidelines. Banks are for profit organizations. Banks exist to make a profit! Jobs of the bank: make loans, hold deposits, pay check, offer safety deposit boxes, other financial services.

8. BANKS Banks collect funds from 3 sources Banks collect funds from 3 sources –Deposits (checking, savings, and Certificates of Deposit) –Short-term borrowing from other banks –Equity capital Banks are intermediaries between savers and borrowers. The interest that banks take from their loans is how they make their profit!

9. SAVINGS & LOANS Federally or state chartered financial institutions. Federally or state chartered financial institutions. Most deposits come from consumers. Most deposits come from consumers. The majority of their assets come from home mortgages The majority of their assets come from home mortgages

10. SAVINGS &LOANS Primary job of savings and loans is to finance long-term residential housing. Primary job of savings and loans is to finance long-term residential housing. Loans are made to people wanting to build or restore their homes. Loans are not made to businesses. Loans are made to people wanting to build or restore their homes. Loans are not made to businesses. Most of the services of banks are not carried out by a S&L. Most of the services of banks are not carried out by a S&L.

11. CREDIT UNION Non-profit financial cooperative. Non-profit financial cooperative. Makes personal loans and offers other banking services to individuals sharing a common bond or group membership. Makes personal loans and offers other banking services to individuals sharing a common bond or group membership. Most credit unions are organized to help particular groups. Most credit unions are organized to help particular groups. Controlled by members Controlled by members

12. CREDIT UNIONS Board is elected by members. Board is elected by members. –Serve an advisory role –They inform members of changes, advise the president, and establish policies for the union. Credit unions can lend at lower rates and offer higher rates for savings accounts because they are non-profit. Credit unions can lend at lower rates and offer higher rates for savings accounts because they are non-profit.

13. SECURITIES BROKERAGE Businesses that act as intermediaries between buyers and sellers in the stock market or bonds(securities). Businesses that act as intermediaries between buyers and sellers in the stock market or bonds(securities). Work on a commission or fee basis. Work on a commission or fee basis. Usually offer financial advice and counsel Usually offer financial advice and counsel Explain the stock market to their buyers. Explain the stock market to their buyers.

14. FDIC Banks don’t have to hold all of the money that people have deposited. Banks don’t have to hold all of the money that people have deposited. If the bank loans out your money and you want to take it out, the bank will pay you with someone else’s money and replace their money later. If the bank loans out your money and you want to take it out, the bank will pay you with someone else’s money and replace their money later. If everyone goes to take their money out of the bank, the bank has a problem because they don’t have all the money. If everyone goes to take their money out of the bank, the bank has a problem because they don’t have all the money. The government had guaranteed to protect your money. Every bank account worth $250,000 or less is protected by the government. The government had guaranteed to protect your money. Every bank account worth $250,000 or less is protected by the government.