1. The Structure of the Federal Reserve

2. Board of Governors Federal Reserve Bank Member Banks Federal Open Market Committee (FOMC) Advisory Councils The structure of the federal reserve

3. The Federal Reserve System Created in 1913 Board of Governors Made up of 7 individuals Appointed by the President for one 14-yr term Must be approved by the Senate One members term expires every 2 years Chairman  Janet Yellen

4. Do all banks belong? No To join, banks must purchase stock in its Federal Reserve district bank

5. How does the fed it operate? Main function is to control money supply

7. Reserve Requirement A set percentage of deposits a bank must keep on reserve Anywhere between 3 – 14% Controlling the money supply: Increase supply decrease RR (reserve requirement) Decrease supply increase RR

8. Discount Rate The interest rate the Fed charges member banks to borrow When the prime rate or discount rate changes, all interest rates will change Controlling the money supply: Increase supply decrease DR (discount rate) Decrease supply increase DR

9. Federal Open Market Operations (fomo) Buying and selling securities The Fed is the nation’s owner of securities Controlling the money supply: Increase supply buy securities Decrease supply sell securities

10. The Federal Reserve constantly monitors ______________. It will increase or decrease the money supply by increasing or decreasing the interest rates. The ________________ reacts to decisions by the ____________________. INFLATION FEDERAL RESERVE STOCK MARKET

11. Fractional Reserve Banking www.classzone.com

12. THE BUSINESS OF BANKS

13. The Role of Banks Banks are a business with the same profit making goals of any other business. They make a profit by providing services

14. Role of banks 1.They provide safety and interest income for depositors 2.A source of loans for people in business 3.How does a bank make a profit? a. By charging higher rates of interest to borrowers then they pay to depositors b. Credit cards

15. Bank assets and liabilities An asset is something you own a.Loans b.Bonds c.Real estate d.Cash reserves Liabilities are something you owe. a.Checking and saving account deposits b.Loans from the Federal Reserve c.Money owed to stockholders

16. Federal Deposit Insurance Corp. Why created? 1.Stop runs on banks How much? 1.$250,000

17. Competition for banks 1.Tax shelters, 401K plans, Roth IRA’s 2.The Stock Market 3.Credit Unions

18. MODERN BANKING

19. Common loans banks make Mortgage Real estate Lender & borrower Monthly Lender

20. Credit Cards Issued by banks to users Pays; lends Repaying

21. BANKING DEREGULATION

22. Bank Mergers Larger banks acquired smaller ones Small ones joined forces to enter different geographic locations BENEFITS Increased competition which keeps interest rates low. Increase in the number of bank branches. CONS More banks to choose from. Big banks show less interest in individual customers.

23. Financial Services Act 1999 Allowed banks to sell stocks, bonds, and insurance Didn’t really work out

24. Technology & Banking ATM’s Allows you to make transactions without seeing a bank officer Debit Cards Withdraws money right from your account Stored-value cards AKA gift cards

25. TAX BASES & STRUCTURES

26. Most Common Tax Bases Individual income tax Corporate income tax Sales tax Property tax

27. Individual Income Tax Tax based on an individual’s income from all sources

28. Corporate Income Tax Tax based on a corporation’s profits

29. Sales Tax Tax based on the value of goods or services at the time of sale. http://www.tax.ny.gov/pdf/publications/sales/pub718.pdf http://www.earthodyssey.com/sales_tax.html

30. Property Tax Tax based on the value of an individual’s or business’s assets, generally real estate.

31. TAX STRUCTURES

32. Proportional Tax Takes the same % of income from all taxpayers regardless of how much they make “FLAT TAX”

33. Progressive Tax Places a higher % rate of taxation on higher-income earners The Federal Income tax

34. Regressive Tax Takes a larger % of income from people with lower incomes SALESPROPERTY

35. Why tax incentives? The gov’t may encourage behavior that it believes is good for the economy and for society http://thehotellafayette.com/

36. What is a sin tax? Taxes imposed on products or activities considered to be unhealthful or damaging to society

37. Withholding Money taken from a worker’s pay before the worker receives it Also called the payroll tax

38. Ability-to-pay Principle People with higher incomes not only pay more in total taxes but also pay a higher percentage of their income in taxes

39. THE FEDERAL BUDGET

42. DISCRETIOARY SPENDING MANDATORY SPENDING INTEREST ON DEBT WHAT ARE THE SPENDING CATEGORIES FOR THE FEDERAL BUDGET?

43. Mandatory Spending Spending that is automatically budgeted without government action & is based on existing laws Ex. Medicare, medicaid, social security, food stamps.

44. Discretionary Spending The President must make his request and Congress must approve each year. Ex. International affairs, military, education programs,

45. Interest on debt The cost of the government borrowing money expenditures exceed revenues in a one year period Deficit – expenditures exceeding revenues Debt – cumulative value of all previous deficits

47. National Debt

48. What is national debt? The total amount of money that the government owes Deficit Spending - A government spends more than it collects in revenue

49. $17,526,904,035,122.81 The estimated population of the United States is 317,357,309; so each citizen’s share of this debt is $55,102.18! The National Debt has continued to increase an average of $2.54 billion per day since Sept. 30, 2012! http://www.usdebtclock.org/

51. How is money raised for deficit spending? Treasury Bills – mature in less than 1 year Treasury Notes – mature in 2-10 years Treasury Bonds – mature in 30 years Trust Funds – S.S., medicare, medicaid Interest paid on all w/ higher interest rates on those with longer maturity dates

52. In 1981 national debt was _______% of GDP (______% privately owned) In 2006 national debt was _______% of GDP (less than _______% privately owned) In 2012 national debt was _______% of GDP 33 80 68 60 70

53. Effects of Debt POSITIVE When government spends to stimulate the economy NEGATIVE Gov’t competes w/ the private sector for investments With more debt, the gov’t is just repaying interest

55. What is fiscal policy? Fiscal policy is the way governments adjust levels of _______________ and ________________ in order to ____________ and ________________ a nation’s economy. SPENDING TAX RATES MONITOR INFLUENCE

56. What is monetary policy? Monetary policy is the way which a _______________________ influences a nation’s money supply. CENTRAL BANK Fiscal & monetary policies are used to help guide a country to meet its: MONEY SUPPLY

57. Business Cycle

58. Historically… Initially, the US government started with a _________________________ approach to business. However, after the ______________________________________, it was clear that the economy needed some guidance. LAISSEZ FAIRE GREAT DEPRESSION http://cache.gawkerassets.com/assets/images/8/2011/11/add1ce9116d1320399c40975b92de5c3.jpghttp://cache.gawkerassets.com/assets/images/8/2011/11/add1ce9116d1320399c40975b92de5c3.jpg ; 11/22/2011.

59. So.. After WWII, the government decided they needed to take a _________________________ in the economy to regulate: UNEMPLOYMENT BUSINESS CYCLES INFLATION COST OF MONEY PROACTIVE ROLE www.members.fortunecity.comwww.members.fortunecity.com ; 11/22/2011.

61. LIMITATIONS OF FISCAL POLICY: 1.It follows economic conditions and passing legislation takes time. 2.It should follow the business cycle to balance out peaks and troughs, but it is tough to predict. 3.Rational Expectation Theory-people and businesses expect fiscal policy to have certain outcomes. When they react to protect their interests, they may limit the effectiveness of the policy. 4.Political issues. (Council of Economic Advisers-advises president on fiscal policy, but they do not always follow because of political pressure.) 5.Regional issues.

62. Top 10 U.S. Creditors China  $906.8 billion Japan  $877.4 billion England  $477.6 billion Oil exporters (OPEC)  $213.9 billion Brazil  $177.6 billion Hong Kong  $139.2 billion Caribbean banking centers  $133.7 billion Russia  $131.6 billion Taiwan  $131.2 billion Canada  $125.2 billion

63. The following are the top ten creditors to the USA as of March, 2009: (Amt. in Billions) 1.China 767.90 2 2.Japan 686.70 3 3.Caribbean Banking Centers 213.60 4 4.Oil Exporters 192.00 5 5.Russia 138.40 6 6.United Kingdom 128.20 7 7.Brazil 126.60 8 8.Luxembourg 106.10 9.Hong Kong 78.90 10.Taiwan 74.80

64. http://prezi.com/nr12bzmz2j_t/untitled-prezi/

65. DEMAND-SIDE ECONOMICS: FISCAL POLICY TO STIMULATE AGGREGATE DEMAND– KEYNESIAN ECONOMICS What was Keynes first revolutionary idea? He defined AGGREGATE DEMAND as the sum of investment, consumer spending, government spending, and net exports.

66. What did he propose the British government do in 1929? He proposed they spend money on public works projects to create jobs and ease unemployment.

67. What made Keynes question classical economics? The 1920’s going into the Great Depression and the cycle of demand falls, businesses produced less leading to layoffs, consumers had less money which led to falling demand…

68. Name two of his books: A Treatise on Money (1930) The General Theory of Employment, Interest, and Money (1936)

69. Keynes advocated increased government spending and decreased taxation to end recessions. INCREASED GOVERNMENT SPENDING CREATES JOBS INCREASES INCOME

70. Keynes advocated increased government spending and decreased taxation to end recessions. DECREASED TAXATION CONSUMERS SPEND MORE BUSINESSES INVEST MORE

71. John Maynard Keynes

72. Aggregate Demand The sum of all the demand in the economy

73. His Views Believed that monetary policy was essential to maintaining a healthy economy Stabilize the economy by stabilizing price levels by lowering interest rates

74. b/c … He resigned as the British Treasury’s Rep @ the Treaty of Versailles b/c he felt the war reparations Germany was being forced to pay were ridiculous

75. What to do in a recession? Increase gov’t spending to create jobs & give people income to buy goods Lower taxes so people have more $ to buy goods Both would increase AD

76. WHO?WHY?HOW?WHAT? Based on the Laffer Curve, developed by Arthur Laffer States that a reduction in taxes will stimulate the economy through increased consumer spending. Less taxes = more $ for consumers Consumers spend $ which increases demand for businesses More business = more jobs Workers can bargain for higher wages That leads to higher tax revenues

77. SUPPLY-SIDE FISCAL POLICY: Focuses on cutting the cost of production to encourage producers to supply more. SUPPLY-SIDE ECONOMISTS FAVOR: CUTTING TAXES ON INDIVIDUAL AND CORPORATE INCOME CUTTING IN THE HIGHER TAX BRACKETS GIVES MORE MONEY TO THOSE MOST LIKELY TO INVEST IN BUSINESS SPENDING CUTS-THE LESS THE GOVERNMENT SPENDS THE LESS TAXES NEED TO BE COLLECTED DECREASE GOVERNMENT REGULATION BECAUSE THESE ADD TO THE COSTS OF PRODUCTION

78. Explaining Laffer’s Theory Illustrates how tax cuts affect tax revenues and economic growth. Tax revenues increase as tax rates increase to a certain point. After that point, higher taxes actually lead to decrease tax revenue. WHY? Too high of taxes could actually discourage people from working, investing, and spending.

79. PROVING LAFFER’S THEORY: Legislation passed in the 1980’s CUT federal income tax rates substantially (top tax bracket from 70% to around 30%), however revenue collected from income tax INCREASED about 13%.

80. DISPROVING LAFFER’S THEORY: 1.With lower taxes people should work more as some did. However, some found they brought home the same amount of income from before the tax cuts by working less. 2.Lower tax rates should increase savings and investments, but savings declined during the 1980’s. http://www.youtube.com/watch?v=pSOgxZ8lRUw http://www.youtube.com/watch?v=ZH1Cms4zk7c