1. Unit 7 Money, Banking, and Monetary Policy According to your textbook on page 492, the ideal money should have 7 characteristics? What are they? And do you think our “money” fulfills those 7 criteria? Explain!

2. The Ideal Money is… 1. _____________________ 2. _____________________ 3. _____________________ 4. _____________________ 5. _____________________ 6. _____________________ 7. _____________________

3. Does our “money” fulfill those 7 criteria? Explain! _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________

4. The Function of Banks Discuss with a partner: How do banks make a profit???? _______________________________________ _______________________________________ _______________________________________ _______________________________________

5. History of Banking 1.1 st bankers were ___________________ where people deposited gold to vaults for a _____ 2.Goldsmiths gave a __________ to a depositor and this became __________ 3.Used a 100% ___________________ in the beginning, meaning __________ money was completely backed by __________ 4.Then, they realized that they didn’t need to keep all the gold. 5.The Goldsmiths began __________ out some portion of the money they had (__________ __________ Loans). This is called a __________ __________ __________.

6. Create a Flow Map explaining the history of banking **You may include sub-steps below**

7. What is Money??? _______________________________________ _______________________________________ _______________________________________

8. The 3 Functions of Money _____________________ : it can be used to __________ goods and services _____________________ : it can be used to __________ the value of different goods and services _____________________ : It can be __________ to buy something in the future

9. Tree Map Create a Tree Map describing the three functions of money! (Include term, definition, & visual) Three Functions of $$

10. Why Our Money Has Value: _____________________ -- Throughout the world, $$$ are accepted as form of money _____________________ -- $$$ accepted for money because government says so _____________________ -- “Money doesn’t grow on trees”

11. Bank Terminology _____________________ — total deposits banks have _____________________ — deposits bank cannot use to make a profit _____________________ — deposits banks can use to make a profit Vault Cash—cash reserves on hand- 2%

12. THE FEDERAL RESERVE – “___________”: (The U.S. central banking system) Created in _____ after a series of bank failures. The Fed Board of Governors: __ members appointed by the President, with confirmation by the Senate Board members serve ____ year terms _____________ appoints the chairperson (____ _____________) to a ___ year term. ____?__Regional Federal Reserve Banks: Regional banks are located in major cities around the country Each bank has a president chosen by the bank’s board of directors The board of directors is typically drawn from the local business and banking community

13. The Federal Reserve =_________________________________ One of the functions of the Fed is to ____________ the money supply through ____________ ____________. Monetary policy works by encouraging or discouraging banks from making __________.

14. What are the two extremes of the business cycle??? _____________ TOO ______ SPENDING The Fed needs to __________ the _________ _________ _____________ TOO _____ SPENDING The Fed needs to __________ the __________ __________

15. Recession: Too ________ spending!!! Try to correct this problem with your partner! Example: –Let’s say you have only $1 in your wallet right now. Name something you would be able to buy for a $1. –Now, let’s say that your Money Supply (MS) went up…and now you have $5. What would you be able to buy now??? –When your supply of money increased, what happened to your total spending. Did it go up or down???

16. Write down how you and your partner would correct a recession… _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ ______________________________________________________________________________

17. Inflation: Too _______ spending!!! Now, think of this new economic problem when spending is too high. With a partner, discuss your answer for the following questions. If there is too much spending in the U.S. economy during a period of high inflation, what needs to happen to the Money Supply to help pull the U.S. out of a recession??? How does decreasing the MS help us get out of a period of high inflation???

18. Write down how you and your partner would correct inflation… _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ _______________________________________ ______________________________________________________________________________

19. Monetary Policy Changes in the __________ __________, intended to maintain __________ prices, __________ employment and economic __________ (3 __________ Econ Goals!) If the Fed is fighting unemployment and declining GDP (recession), it wants to __________ the money supply. If the Fed is fighting inflation, it wants to __________ the money supply.

20. Read ‘The Tools of The Fed’ Problem: Recession The MS needs to ____ Problem: Inflation The MS needs to ____ Reserve Requirement RR: ______ Explain how this specific action will get the economy out of a recession. RR: ______ Explain how this specific action will get the economy out of an inflationary problem. Discount Rate DR: _____ Explain how this specific action will get the economy out of a recession. DR: _____ Explain how this specific action will get the economy out of an inflationary problem. Open-Market Operations OMO: _____ Explain how this specific action will get the economy out of a recession. OMO: ______ Explain how this specific action will get the economy out of an inflationary problem. After you are done reading, complete the chart below…

21. 3 Tools of The Fed RESERVE REQUIREMENT DISCOUNT RATE OPEN MARKET OPERATIONS

22. 3 Tools of The Fed __________ –The absolute lowest % that all banks must keep of their actual reserves __________ –The interest rate that the Fed charges on commercial banks –(Wells Fargo, Wa-Mu, B of A) __________- __________ __________ –Gov’t bonds (IOUs) that can be bought and sold in the open market

23. Reserve Requirements The reserve requirement is the minimum percent of deposits that banks must keep on reserve in their banks When the Fed lowers the reserve requirement, banks have _____ money to lend and the money supply ____________ When the Fed raises the reserve requirement, banks have ________ money to lend and the money supply ___________

24. Discount Rate The discount rate is the interest rate that the Fed charges on loans to banks. When the Fed lowers the discount rate, banks are encouraged to make ______ loans and the money supply ____________. When the Fed raises the discount rate, banks are discouraged from making loans and the money supply ____________.

25. Open Market Operations When the Fed buys or sells U.S. govt. bonds (IOUs) to influence the money supply When the Fed buys bonds, bank deposits _________, banks have _______ money to lend, and the money supply _____________ When the Fed sells bonds, bank deposits __________, banks have ________ money to lend, and the money supply _____________.

26. When Fighting Recession: MS needs to _______ __________ Monetary Policy Using a Money Market Graph To ___ the MS, the Fed can: –RR: _____ –DR: _____ –OMO: _____

27. When Fighting Recession: MS needs to _______ __________ Monetary Policy Using AD and AS Analysis RR______ DR___  MS____  i_____  I & C ___  AE_____  AD____  PL/OE_____ OMO_____

28. When Fighting Inflation: MS needs to _______ __________ Monetary Policy Using a Money Market Graph To ___ the MS, the Fed can: –RR: _____ –DR: _____ –OMO: _____

29. When Fighting Inflation: MS needs to _______ __________ Monetary Policy Using AD and AS Analysis RR______ DR____  MS____  i_____  I & C ___  AE_____  AD____  PL/OE_____ OMO_____

30. Wrap-Up: True or False **If False, write the correct answer** For a given money demand curve, an increase in money supply results in a decrease in interest rates. Monetary policy is carried out by adjusting taxes and government spending. One necessary characteristic of money is that it must be unlimited in supply. Money is anything that is widely accepted for goods and services. The MS needs to decrease in order to fight inflation.