1. Money, Banking, Credit & Consumer Rights Ch. 20

2. Money Replaced the barter system in traditional economies Replaced the barter system in traditional economies Functions Functions –Medium of exchange  Used to trade items –Store of value  Reliability to store, save, and retrieve –Measure of value  Can be divisible  Each one must be equal to the other  Not easy to counterfeit

3. Different types of Money

4. What is it called when you get less satisfaction from eating your 2 nd piece of pizza? 1. 1. Law of Diminishing Returns 2. 2. Anti-Pizza disease 3. 3. Full Stomach syndrome 4. 4. Diminishing Marginal Utility

5. What is not a factor of production? 1. 1. Unions 2. 2. Labor 3. 3. Natural Resources 4. 4. Capital

6. What type of economy is the U.S.? 1. 1. Traditional 2. 2. Market 3. 3. Mixed 4. 4. Command

7. Banking Brings savers (sellers) & borrowers (buyers) together in the market Brings savers (sellers) & borrowers (buyers) together in the market Savers = deposits Savers = deposits Borrowers = loans Borrowers = loans Banks are a business and have profit motive Banks are a business and have profit motive Banks Make money off of fees and interest on loans Make money off of fees and interest on loans Reserve Requirements – banks want more deposits so they can loan more money Reserve Requirements – banks want more deposits so they can loan more money

8. What signaled the start of the Great Depression? 1. 1. Roosevelt’s Fireside Chats 2. 2. Bank Holiday 3. 3. Stock Market Crash 4. 4. Hoovervilles

9. Types of Deposit Accounts 1. Checking Account –Allows customers to write checks, use debit cards or withdraw money from an ATM (Automated Teller Machine) –Money transactions are quick and efficient –Money does not stay in the account for long –Depositor usually receives no interest –Checking/Debit Cards  Transfer of funds electronically  Tied directly to checking accounts

10. Checking Accounts

12. Types of Deposit Accounts cont. 2. Savings Account –Banks pay interest to customers based on how much money is deposited Banks pay interestBanks pay interest –Money grows larger the longer it is there –Money remains untouched for longer periods of time

13. Savings Account Sample Bank Book

14. Types of Deposit Accounts cont. 3. Certificate of Deposit (CDs) –Customers loan a certain amount to the bank for a certain amount of time  Ex. I bought a $1,000 CD for 1 year at 4% –Higher rates of interest than savings –Customers can’t withdraw their money without a penalty

15. What are the type of jobs that usually occur in manufacturing sectors called? 1. 1. Rust Belt 2. 2. Sun Belt 3. 3. White Collar 4. 4. Blue Collar

16. Types of Banks 1. Commercial Banks – full service to individuals & businesses (Most common) 2. Savings & Loan Associations – traditionally loaned money to people buying homes & issued only savings accounts 3. Credit Unions – non-profit – sponsored by large businesses, labor unions or government institutions – offer full services at usually lower prices

17. Commercial Banks

18. Credit Unions

19. FDIC Federal Deposit Insurance Corporation Federal Deposit Insurance Corporation Insures deposited money in the bank up to $100,000 – Right now $250,000 Insures deposited money in the bank up to $100,000 – Right now $250,000 Most are FDIC insured Most are FDIC insured

20. What US event caused the formation of the FDIC? 1. 9/11 2. Bombing of Pearl Harbor 3. Stock Market Crash and Bank Runs 4. The birth of Mr. Cleland

21. Loans Agreement for borrowing money with repayment plus interest Agreement for borrowing money with repayment plus interest Used to make expensive purchases Used to make expensive purchases Banks make money on the interest paid for a loan Banks make money on the interest paid for a loan In order to make loans, banks have to have money In order to make loans, banks have to have money To have the money, banks must attract deposit customers To have the money, banks must attract deposit customers Can increase the supply of money Can increase the supply of money Principle – amount borrowed Principle – amount borrowed Interest – cost of borrowing Interest – cost of borrowing Interest Rate – rate of cost to borrow Interest Rate – rate of cost to borrow

22. Which of the following best explains why a business could move from record sales and production to plant shutdowns and company layoffs? 1. 1. Diminishing Marginal Utility 2. 2. Law of Supply 3. 3. Law of Demand 4. 4. Law of Diminishing Returns

23. Types of Loans 1. Fixed – interest is set & can’t be changed 2. Variable – Changes when interest rates change

24. Which of the following best describes scarcity? 1. 1. Not enough goods for everyone 2. 2. The amount that people want 3. 3. Lack of desire to produce enough resources 4. 4. Not enough resources to provide for every desire

25. Charge Accounts Buy goods & services at individual stores & pay for them later Buy goods & services at individual stores & pay for them later Credit limit: maximum amount a person can buy with the promise of payment Credit limit: maximum amount a person can buy with the promise of payment

26. Types of Charge Accounts 1. 1. Installment Account – –Repaid with equal payments over a certain period of time – –Part of the payment goes towards interest & part towards the principle   Car loan or mortgage 2. 2. Regular Account – –Billing cycles where a bill is sent at the end – –No interest is charged if entire bill is paid – –Account can’t be used again until the balance is paid – –Interest is charged on the balance not paid   Furniture Stores usually do this. Pay by 2010, certain amount each month, but with no interest. 3. 3. Revolving Account – –Billing cycles where a bill is sent at the end – –Interest charged on portion not paid – –Account can still be used until credit limit is reached   Example: Credit Cards

27. What is the government’s role in a market economy? 1. 1. Set price control 2. 2. Own the means of production 3. 3. Absolutely no role 4. 4. Set production quotas

28. Credit Cards Make purchases without having the money Make purchases without having the money Charge high interest rates – usually @ 18% Charge high interest rates – usually @ 18% Lower interest rates if the customer is reliable Lower interest rates if the customer is reliable Finance Charges – Cost of credit (interest) expressed in dollars Finance Charges – Cost of credit (interest) expressed in dollars APR – Cost of credit (interest) expressed as a percentage APR – Cost of credit (interest) expressed as a percentage

29. Applying for Credit Fill out application Fill out application Credit Bureau does a credit check Credit Bureau does a credit check Creditor may ask for references Creditor may ask for references Credit checks show your income, debt and ability to pay debts in the past Credit checks show your income, debt and ability to pay debts in the past

30. Which economic term best explains a consumer’s choice of buying a new car instead of opening a savings account? 1. 1. Trade-off 2. 2. Scarcity 3. 3. Opportunity cost 4. 4. Comparative advantage

31. Credit Rating Rating of risk: Excellent, Good, Average or Poor Ratings have a number associated with them 3 Credit Bureaus: Experian, Transunion & Equifax Gives lenders an idea of reliability when issuing loans – –Higher Credit Score = less interest you are charged on a loan = saving money Unsecured loans – loan based on reputation Unsecured loans – loan based on reputation Secured loans – have collateral to back up the loan Secured loans – have collateral to back up the loan

32. Credit Bureaus

33. Which of the following would have a negative impact on the GDP? 1. An increase in exports 2. An increase in imports 3. An increase in production 4. An increase in population

34. Government Regulations Equal Credit Opportunity Act: a person can’t be denied credit because of race, religion, national origin, gender, marital status or age Usury Laws: Restrict the amount of interest companies, not banks, can charge – –In North Carolina, it is 8%. Lend neighbor $100 loan can only receive $8 from interest

35. What is the unintended side effect of an action? 1. 1. Utility 2. 2. Public Goods 3. 3. Personality 4. 4. Externality

36. Bankruptcy Debts are so large they can’t be paid back Most of what a debtor owns is sold or given to creditors Takes 10 years to reestablish credit – –States can become bankrupt tooStates can become bankrupt too

37. Why do elephants face the threat of extinction while cows do not? 1. 1. Cattle are a valuable resource while elephants have no market value. 2. 2. There is a high demand for products that come only from the cow. 3. 3. There are still lots of cattle that roam free, while most elephants are in zoos. 4. 4. Cattle are owned by ranchers, while elephants are owned by no one.

38. Consumer Rights Consumer – someone who buys a product or service (YOU!) Types of Income – –Disposable Income – money remains after taxes taken out.   Money to pay for house, car, etc. – –Discretionary Income – money remaining after paying for necessities   Either save or spend it

39. Consumer Rights cont. Consumerism – a movement to educate buyers on purchases and to make sure products are safe – –Congress laws – Pure Food and Drug Act in 1906 – –Private groups – BBB or Better Business Bureau Consumer Bill of Rights – –Consumers have…   Right to a safe product   Right to be informed   Right to choose   Right to be heard   Right to redress

40. Consumer Responsibilities Smart Buying Strategies – –Info on products – –Watch out for advertising – –Comparison shopping – find out prices on product from different stores/internet   Brand Name vs. Generic When product fails – –Report it – –Check the warranty – –Keep a copy of records – –Be calm Make Fair complaints – –Ex.