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Chapter 14 Review Money and Banking.

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Presentation on theme: "Chapter 14 Review Money and Banking."— Presentation transcript:

1 Chapter 14 Review Money and Banking

2 Vocabulary Terms Bank Holding Company- a firm that owns one or more banks Legal Reserves- coins and currency that banks hold in their vaults (lockers) State Bank- banks that received its charter to operate from a state government Member Bank Reserves- deposit a member bank keeps at the FED Discount Rate - interest rate the FED charges on loans to member banks

3 Vocabulary Terms Silver Certificate- paper currency backed by silver dollars Fiat Money- anything a government decrees to be money Medium of Exchange- something accepted as payment for goods and services Federal Reserve Notes- paper currency by the FED Barter Economy- economy based on trade Regulation Z- law giving the FED authority to allow people to borrow money

4 Concepts Money Types As an economic good. Determining value Defined:
Types and characteristics: 1.Divisible Transferrable In limited supply Durable Types Commodity money: money that can also be used as an economic good (tea, coffee, chocolate, salt) Fiat money: paper and coins that the government says are money

5 Concepts Easy Money Policy Tight Money Policy What is it?
The FED expands money supply (gives out more money) Interest rates fall More money is in the economy How does it effect the economy? More spending is happening and the economy improves Tight Money Policy The FED contracts money supply (gives out less money Interest rates increase Less money in the economy Less spending is happening and no economic growth

6 Concepts FOMC Federal Reserve
What does it do? It makes decisions about interest rates Federal Reserve How the FED effects interest rates. What is its organization/makeup/structure Made up of 12 district banks and member banks President appoints Board of Governors When was it established? 1913 Why? It is responsible for issuing and storing money and gives it to member banks when needed

7 Concepts FDIC Continental Currency
What is its purpose? Provides insurance for people’s money up to $500,000. Why it was needed? To protect the savings of the American people Continental Currency What is the historical significance? So many of these dollars were printed that they became worthless M1- coins, currency, checks, checking accounts M2- all M1 and savings accounts

8 Chapter 14 – 1 Visual Page 409

9 Chapter 14 – 2 Visual Page 409

10 Chapter 14 – 2 Visual Page 395

11 Chapter 14 – 3 Visual Page 405

12 Chapter 14 – 3 Visual Page 400

13 Essay Are supply and demand curves useful for determining how a change in monetary policy will impact interest rates in the short run? Explain If the supply of money increases, the interest rate goes down. If the supply o money decreases, the interest rate goes up. Graphs on page 402

14 Essay Using the reserve requirement, the Federal Reserve wants to slow economic growth. How would the FED accomplish its goal? Explain what the effect of this action would have on consumers. The FED can slow economic growth by raising the reserve requirement. This will make a shortage of money and increase interest rates for consumers.

15 Essay Explain why is it important for money to be portable, divisible, durable and in limited supply? What effect, if any, would this have on the economy if these characteristics were not present? Portable: to easily move with money from place to place Divisible: you can make change from the money Durable: stays for a long time and you don’t have to keep printing Limited supply: so the dollar doesn’t lose its value and no inflation happens

16 Essay Using the situation given, what would be the impact on consumers if the FED action describe was taken?


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