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Todays plan Test Strategies Review both fiscal and monetary policy Give you some sites for activities Answer any questions about this topic.

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Presentation on theme: "Todays plan Test Strategies Review both fiscal and monetary policy Give you some sites for activities Answer any questions about this topic."— Presentation transcript:

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2 Todays plan Test Strategies Review both fiscal and monetary policy Give you some sites for activities Answer any questions about this topic

3 Will Smith http://www.bing.com/videos/search?q=will+smith+I+will+die+on+the +treadmill&FORM=VIRE1#view=detail&mid=18C5DF8E6C8FBD5DC09 718C5DF8E6C8FBD5DC097 http://www.bing.com/videos/search?q=will+smith+I+will+die+on+the +treadmill&FORM=VIRE1#view=detail&mid=18C5DF8E6C8FBD5DC09 718C5DF8E6C8FBD5DC097

4 Self-control strategies 4 …against “the hourly temptations”

5 Today’s study goal: Time and place: Obstacles: If-then plan: If, then Obstacle (time and place)Action to overcome obstacle Making plans… 5 Duckworth, A. L., Kirby, T., Gollwitzer, A., & Oettingen, G. (in press). From fantasy to action: Mental contrasting with implementation intentions (MCII) improves academic performance in children. Social Psychological and Personality Science.

6 …improves academic performance 6 Duckworth, A. L., Kirby, T., Gollwitzer, A., & Oettingen, G. (in press). From fantasy to action: Mental contrasting with implementation intentions (MCII) improves academic performance in children. Social Psychological and Personality Science.

7 Where you look matters 7

8 8 Turn off the cell phone at home!

9 Out of sight, out of mind… 9

10 What happens when you miss the target

11 The Car Analogy The economy is like a car… You can drive 120mph but it is not sustainable. (Extremely Low unemployment) Driving 20mph is too slow. The car can easily go faster. (High unemployment) 60mph is sustainable. (Full employment) Some cars have the capacity to drive faster then others. (industrial nations vs. 3 rd world nations) If the engine (technology) or the gas mileage (productivity) increase then the car can drive at even higher speeds. (Increase LRAS) The government’s job is to brake or speed up when needed as well as promote things that will improve the engine. (Shift the PPC outward) 11

12 For now we will only focus on Fiscal Policy. 12

13 The Multiplier Effect Why do cities want the Superbowl in their stadium? 13

14 Economics lesson on multiplier activity

15 Unit 4: Money and Monetary Policy 15

16 THE FED Monetary Policy 16

17 How the FED Stabilizes the Economy 17

18 THE FEDERAL RESERVE AND THE BANKING SYSTEM The FED regulates the economy by adjusting the money supply by … 1. Setting Reserve Requirements (Ratios) 2. Lending Money to Banks & Thrifts Discount Rate 3. Open Market Operations Buying and selling Bonds The FED is now chaired by Ben Bernanke. 18

19 Run on banks https://www.youtube.com/watch?v=iPkJH6BT7dM As you watch this clip, think about how banks make money? How do banks today prevent this situation from happening?

20 The Reserve Requirement The Reserve Requirement or “reserve ratio” is the percent of deposits that banks must hold in reserve (the percent they can NOT loan out). Example: Reserve ratio =.10 or 10% You deposit $1000 in the bank The bank must hold $100. It lends $900 out to Bob. Bob deposits the $900 in his bank. Bob’s bank must hold $90. It loans out $810 to Jill. Jill deposits $810 in her bank. SO FAR, an increase of $1000 has cause the CREATION of another $1710 (Bob’s $900 + Jill’s $810). This demonstrates the MONEY MULTIPLIER 20

21 Reserve requierments http://www.fte.org/teacher-resources/lesson- plans/efiahlessons/show-me-the-money-activity/ Activity demonstrates 1.How loans are made 2.How loans from one bank become deposits in another bank 3.The money multiplier 4.How the reserve requirement influences the MM 5.Higher reserve requirement, slows down the car, lower speeds it up

22 Adjusting the Reserve Requirement 1.If there is a recession, what should the FED do to the reserve requirement? (Explain the steps.) 2.If there is inflation, what should the FED do to the reserve requirement? (Explain the steps.) Lowering the Reserve Ratio Banks may hold less reserves Banks create more money as they increase lending Money supply increases Raising the Reserve Ratio Banks must hold more reserves Banks create less money as they decrease lending Money supply decreases 22

23 Open Market Operations Open Market Operations is when the FED buys or sells government bonds (securities). This is the most widely used monetary policy and the most often tested. To increase the Money supply, the FED should _________ government securities. To decrease the Money supply, the FED should _________ government securities. FEDYou How are you going to remember? When the government sells bonds, you give them money. This decreases the money supply. BUY SELL 23

24 Buy and selling of bonds

25 The Discount Rate The Discount Rate is the interest rate that the FED charges commercial banks. Example: If Banks of America needs $10 million, they borrow it from the U.S. Treasury (which the FED controls) but they must pay it bank with 3% interest. To increase the Money supply, the FED should _________ the Discount Rate (Easy Money Policy). To decrease the Money supply, the FED should _________ the Discount Rate (Tight Money Policy). DECREASE INCREASE 25

26 Fed. game http://sffed-education.org/chairman/ Manipulate the discount rate


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