1. 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.

2. 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

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

4. 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?

5. 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

6. 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

7. 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?

8. PP# 14: Balancing a Checkbook
Check writing