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2. Chapter Intro 2 Section 1: What Is Money? The basis of the market economy is voluntary exchange. In the American economy, the exchange usually involves money in return for a good or service. People are willing to accept money in exchange for goods, and financial institutions give people both a safe place to deposit their money or take out loans.

3. Chapter Intro 2 Section 2: The Federal Reserve System Political and economic institutions evolve to help individuals and groups accomplish their goals. The central bank of the United States is the Federal Reserve System. It controls the money supply, serves as the government’s bank, and watches over the banking industry.

4. Chapter Intro 2 Section 3: How Banks Operate Political and economic institutions evolve to help individuals and groups accomplish their goals. Banks offer important financial services to millions of people.

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6. Section 1-Main Idea Guide to Reading Big Idea The basis of the market economy is voluntary exchange. In the American economy, the exchange usually involves money in return for a good or service.

7. Section 1 Money People are willing to accept money in exchange for goods.

8. Section 1 Money (cont.) Money serves different functions and comes in different forms. Functions: –Medium of exchange –Store of value –Measure of value

9. Section 1 Types: –Historically—salt, hides, gems, tobacco –CoinsCoins –CurrencyCurrency Money (cont.) Confidence in money gives value Features of U.S. Currency

10. Section 1 The Financial System Financial institutions give people a safe place to deposit their money or take out loans.

11. Section 1 The Financial System (cont.) Types of financial institutions: –Commercial banksCommercial banks –Savings and loan associations (S & L)Savings and loan associations (S & L) –Credit unionsCredit unions –All perform similar functions

12. Section 1 Regulation and insurance make the U.S. financial system one of the safest. The Financial System (cont.)

13. Section 1 Federal Deposit Insurance Corporation (FDIC) –Formed because of Great Depression –Protects individual accounts up to $100,000 The Financial System (cont.) Consumer confidence in banks fuels economic growth

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15. Section 2-Main Idea Guide to Reading Big Idea Political and economic institutions evolve to help individuals and groups accomplish their goals.

16. Section 2 Structure and Organization The central bank of the United States is the Federal Reserve System.

17. Section 2 Structure and Organization (cont.) The Federal Reserve System, or Fed, is the central bank of the U.S.central bank –Established in 1913 –Divided into 12 Federal Reserve Districts The Federal Reserve System

18. Section 2 Thousands of member banks in the Fed –Member banks are owners –Buy stock and earn dividends in the Fed Structure and Organization (cont.) The Federal Reserve System

19. Section 2 Economic decisions made by Board of Governors –President appoints, Senate ratifies seven members –One member chairs for four years –Free of political pressure Structure and Organization (cont.) The Federal Reserve System

20. Section 2 Different advisory councils report on: –Condition of economy by district –Financial institutions –Consumer loans Structure and Organization (cont.) The Federal Reserve System

21. Section 2 Federal Open Market Committee (FOMC) manipulates money supplyFederal Open Market Committee (FOMC) Structure and Organization (cont.) The Federal Reserve System

22. Section 2 Functions of the Fed The Fed controls the money supply, serves as the government’s bank, and watches over the banking industry.

23. Section 2 Functions of the Fed (cont.) The Fed: –Regulates banks –Controls the money supply –Holds the government’s money

24. Section 2 Two main regulatory functions: –Banking regulation –Consumer credit Functions of the Fed (cont.)

25. Section 2 Government’s bank –Holds government’s money –Sells bonds and Treasury bills –Issues currency Functions of the Fed (cont.)

26. Section 2 Sets monetary policy by controlling money supply and interestmonetary policy –Raises interest rate by contracting money supply –Lowers interest rate by expanding money supply Functions of the Fed (cont.) Monetary Policy and Interest Rates

27. Section 2 Fed tools: –Discount rate—lower rate stimulates economyDiscount rate –Raise and lower reserve requirements for member banksreserve –Open market operations—buying bonds stimulates economyOpen market operations Functions of the Fed (cont.) Monetary Policy and Interest Rates

28. Section 2 The Fed is effective because it can move quickly and fine-tune as needed. –Buying and selling bonds –Changes in interest rates Functions of the Fed (cont.) Monetary Policy and Interest Rates

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30. Section 3-Main Idea Guide to Reading Big Idea Political and economic institutions evolve to help individuals and groups accomplish their goals.

31. Section 3 Banking Services Banks offer important financial services for millions of people.

32. Section 3 Banking Services (cont.) Investors start banks –Need depositors for banks to grow –Interest from loans generates profits

33. Section 3 Deposits –Checking accounts—no interest or low interestChecking accounts –Savings accounts—higher interest for higher depositsSavings accounts –Certificates of deposit—set time period, higher interestCertificates of deposit –Banks make loans using deposits Banking Services (cont.)

34. Section 3 Changes in Banking Throughout American history, banking has become safer and more efficient.

35. Section 3 Changes in Banking (cont.) U.S. banking has become safer and more efficient with time. The National Bank chartered in 1791 –Supplied federal government –Many opposed it –Went out of business when charter lapsed

36. Section 3 Privately owned state banks issued currency until 1863. –National Banking Act –National currency –Federally chartered private banks Changes in Banking (cont.)

37. Section 3 Panic of 1907 –Federal Reserve Act of 1913 passed Changes in Banking (cont.)

38. Section 3 Great Depression –1930s –F. D. Roosevelt closed all banks –Only financially sound could reopen –Federal Deposit Insurance Corporation (FDIC) established Changes in Banking (cont.)

39. Section 3 The Savings and Loan Crisis –Late 1980s and early 1990s –High-risk loans –Hundreds of S&Ls failed –FDIC took over regulations of S&Ls Changes in Banking (cont.)

40. Section 3 The Gramm-Leach-Bliley Act –Passed in 1999 –Banking institutions can offer more services Changes in Banking (cont.)

41. A.A B.B Section 3 Do you agree that there could be a financial disaster like the Panic of 1907 today? A.Agree B.Disagree

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55. Vocab1 coin metallic form of money such as pennies, nickels, and dimes

56. Vocab2 currency both coins and paper money

57. Vocab3 commercial bank a financial institution that offers full banking services to individuals and businesses

58. Vocab4 savings and loan association (S&L) financial institutions that traditionally loaned money to people buying homes

59. Vocab5 credit union nonprofit service cooperative that accepts deposits, makes loans, and provides other financial services

60. Vocab6 obvious easily found, seen, or understood

61. Vocab7 medium a means of doing

62. Vocab8 central bank an institution that lends money to other banks; also, the place where the government does its banking business

63. Vocab9 Federal Open Market Committee (FOMC) the most powerful committee of the Fed, because it makes the decisions that affect the economy as a whole by manipulating the money supply

64. Vocab10 monetary policy policy that involves changing the rate of growth of the money supply in circulation in order to affect the cost and availability of credit

65. Vocab11 discount rate interest rate the Fed charges on its loans

66. Vocab12 reserve a certain percentage of deposits that banks have to set aside as cash in their own vaults or as deposits in their Federal Reserve district bank

67. Vocab13 open market operations purchase or sale of U.S. government bonds and Treasury bills

68. Vocab14 manipulate to handle with skill

69. Vocab15 contract to become smaller

70. Vocab16 checking account an account in which deposited money can be withdrawn at any time by writing a check

71. Vocab17 savings account an account in which customers receive interest based on how much money they have deposited

72. Vocab18 certificate of deposit (CD) timed deposit that states the amount of the deposit, maturity, and rate of interest being paid

73. Vocab19 initial the very first

74. Vocab20 principal the most important

75. Vocab21 behalf in the interest of

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