1. Policy #13: Banking 1.Taxing, spending, and borrowing is monetary policy. 2.Trading a Coke for a Sprite is also called bartering. 3.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 1.Regulates money supply Amount in circulation M1: currency & checking accts held by public M2: M1 + savings & money markets Helps control inflation 2.Reserves : each bank must keep a certain amount of cash on hand or at the Fed

7. 3.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