Unit 4: Money, Banking, and Finance
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Transcript Unit 4: Money, Banking, and Finance
UNIT 4: MONEY, BANKING, AND
FINANCE
Ch. 10: Money and Banking
Ch. 11: Financial Markets
CHAPTER 10.1
Bell Work: Grab workbook sheets
Complete: Unit 1 Warm-up (88 A-C) (105-6 A-E)
Complete Ch. 10 Warm-up (89 A-C)
“How does money serve the needs of our society?”
Objectives
3 Uses of Money
6 Characteristics of Money
Sources of money’s values
Key Terms
http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13369833-5/Flash/Ch10/Econ_OnlineLectureNotes_ch10_s1.swf
CH. 10 INTRODUCTION
How does money serve
the needs of our
society?
Provides means for
comparing values of
goods/services
Serves as a store of
value
W/out wouldn’t be able
to get wants/needs
3 USES OF MONEY
Money is anything that can serve as……
Medium of Exchange
Unit of Account
Store of Value
BARTERING
W/out money, we would acquire goods/services
through barter
Still used in many parts of world
Only in more traditional economies
Too difficult to est. value of bartered goods in a
specialized economy
Money makes exchange EASIER
Provides means for comparing value of goods/services
Usually Money can serve as good store of value
except in times of inflation
CURRENCY
Coins and paper money
Past forms of currency
Cattle, salt, precious stones, fur, dried fish
Would not work well today b/c they lack at least one
of six characteristics of Money
6 Characteristics of Money
Durability
Portability
Divisibility
Uniformity
Limited Supply
Acceptability
DURABILITY/PORTABILITY
Durability
Money must be able to
withstand physical
wear/tear
Portability
Needs to be easily
carried
Paper/coins are
small/light
DIVISIBILITY/UNIFORMITY
Divisibility
Must be easily divided
into small
denominations
Uniformity
Must be able to be
counted/measured
correctly
LIMITED SUPPLY/ACCEPTABILITY
Limited Supply
Would lose value if
unlimited
Fed. Reserve
regulated supply of
money in circulation
Acceptability
Must be accepted by
everyone as exchange
for goods/services
SOURCES OF VALUE
Commodity Money: Objects of value to society
Representative Money: Rep. ownership of value
Fiat Money: Govt. says it is acceptable
Identify this source
http://www.youtube.com/watch?v=7GSXbgfKFWg
LESSON CLOSING
Frontline Video: The Warning
Complete Workbook
http://www.pbs.org/wgbh/pages/frontline/warning/vie
w/?utm_campaign=viewpage&utm_medium=grid&ut
m_source=grid
Pgs. 90,15
HW/Bell Work for tomorrow
Complete S.1 Quiz
10.2 BELL WORK
Books/Folders
Complete S.1 Quiz
10.2
“How has the American banking system changed
to meet new challenges?”
Objectives
Shifts bt. Centralized/decentralized banking before
Civil War
How govt. reforms stabilized banking system in
1800s
Developments in early 1900s banking
Causes of 2 recent banking crises
Key Terms
http://www.pearsonsuccessnet.com/snpapp/iText/products/013-3698335/Flash/Ch10/Econ_OnlineLectureNotes_ch10_s2.swf
INTRODUCTION
How has the American banking system changed
to meet new challenges?
Early people distrusted banks
Banks have worked a lot to increase American Trust
American Banking has developed to meet needs of
growing and changing population
BANKING BEFORE CIVIL WAR
Early banks were informal businesses that
merchants managed in addition to their regular
trade
Post Revolution, nations leaders had idea
Est. a safe, stable banking system
Led to tireless disagreement on how to organize nat’l
banking system
2 Views
Federalists: Wanted centralized banking system
National bank
Anti-federalists: Opposed plan
Decentralized banking; owned/regulated by each state
1ST BANK OF US
Federalists won the 1st debate in 1791
Est. Bank of U.S. w/20 year charter for operations
Anti-federalists argued bank unconstitutional and
was set up only for wealthy
Bank functioned well until 1811 when charter
ran out
State banks then took over
Led to chaos/confusion
Banks issued notes w/out specie to back it up
Banks issued different currencies
2ND BANK OF U.S.
To eliminate chaos,
2nd bank chartered in
1816
Stability greatly
restored
Many still feared
Banks powers
1832, Congress tried to
renew charter
Andrew Jackson vetoed
renewal
Led to Free Banking
Era
FREE BANKING ERA
State chartered banks expanded from 1837-63
Large number led to many problems
Bank runs/panics
Often not enough gold/silver to back notes issued
Led to bank runs: people trying to collect all at same time
Wildcat banks (poorly financed/high rate of failure)
Fraud
Located in remote places where only “wildcats” lived
New banks would issue notes for gold/silver then run off
Different currencies
Differing currencies from states/cities led to confusion and
more fraudulent imitations
STABILITY OF LATER 1800S
Banking Acts of 1863 and 1864
Gave federal govt. power to:
Charter Banks
Require banks to hold adequate amount of gold/silver
reserves
Issue a national currency
1870s
Nation adopted gold standard
Set a definite value for the dollar
1 oz. gold =$20
Gave public a stable currency and gained public confidence
BANKING OF EARLY 1900S
Problems persisted despite stabilizing efforts
Led to Federal Reserve Act of 1913
Est. Federal Reserve System; reorganizing bank
system
12 regional Reserve Banks
All nat’l charted banks required to be members
Federal reserve board
People to supervise banks; appt. by president
Short-Term Loans
Each regional reserve allowed member banks to borrow to
meet short term demands; helped prevent failures in face
of panics
Federal Reserve notes
Created currency used today, allowed them to
increase/decrease supply as needed
BANKING AND GREAT DEPRESSION
Fed. Was unable to
prevent Great
Depression
FDR acted to restore
system in 1930s
Est. FDIC to insure
customer deposits if
bank failed
Changed currency to
Fiat money so Fed
could better control
the supply
TWO CRISES FOR BANKING
Savings/Loan
1970s-1980s Many
industries Deregulated
Led to crises for S/L;
wasn’t prepared for
competitions
High interest rates and
risky loans added on
1989 congress passed
legislation to abolish
independence of S/L
industry
Sub-Prime Mortgage
Mortgage companies and
banks lent $ to people who
couldn’t afford to pay them
off
Interest rates increased
and led to foreclosures
Ripple effect hit banks and
creditors hard and led to
recession
Led to 2008 Bailout of
banks, auto-makers, and
financial firms
LESSON CLOSING
Workbook pages
91 and 23
S2 Quiz for tomorrow
Finish “Warning Video”
10.3 BELL WORK
•Watch
2 Online Sources
• Visual Glossary
• Action Graph
•Finish
Sect. 2 Quiz
10.3
“What banking services to financial institutions
provide?”
Objectives
How money supply in U.S. is measured
Functions of Financial institutions
Different types of Financial Institutions
Changes brought by electronic banking
Key Terms
http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13369833-5/Flash/Ch10/Econ_OnlineLectureNotes_ch10_s3.swf
INTRODUCTION
What banking services do financial institutions
provide?
Financial Institutions
Provide electronic services
Issue credit cards
Make loans to businesses
Provide mortgages to prospective home buyers
Manage ATM machines
MEASURING MONEY SUPPLY
To keep track of different types economists divide
money into categories
M1 represents money that people can gain access to
easily. Have liquidity (converted to cash easily)
Currency held by public
Deposits in checking accounts
Traveler’s checks
M2: all assets in M1 plus several additional assets.
Cannot be converted to cash as easily
Called Near Money; Savings, mutual funds, CDs
FUNCTIONS OF FINANCIAL INSTITUTIONS
Provide wide range of services
Storing money
Provide safe place to store money
Saving Money
Offer people ways to save money though:
Savings accounts
Checking accounts
Money market accounts, allow people to save and write
limited amount of checks
CDs, offer guaranteed rate of interest but cannot be
removed for period of time
FUNCTIONS OF FINANCIAL INSTITUTIONS
Loans
Lend money to people and charge interest on loans
Loans help consumers:
Many banks loan money to other financial
institutions/individuals
Buy homes, pay for college, start/grow businesses
Called Fractional Reserve Banking
Mortgages/Credit Cards
Specific type of loan to buy real estate
Banks also issue credit cards
Owners can buy goods/services w/promise to repay
Often have high interest rate
SIMPLE AND COMPOUND INTEREST
Interest is price paid for use of borrowed money
Principal is amount borrowed
Simple Interest
Compound interest
Amount of interest paid only on the principal
Amount paid on both principal and gained interest
Interest is how banks make money!
They take in more than they pay out
TYPES OF FINANCIAL INSTITUTIONS
Commercial
Banks
Savings/Loan
Assoc.
• Offer checking accounts, accepts deposits,
and makes loans
• Allows people to save/borrow enough for
own homes
Savings Banks
• Owned by depositors who make smaller
deposits than commercial bank would take
Credit Unions
• Cooperative lending assoc.’s est. for
particular groups
Finance
Companies
• Make installment loans to consumers
ELECTRONIC BANKING
Has Increased with the increasing importance of computers
ATMS
•ATMs allow customers to deposit/withdraw cash,
and obtain information
Debit Cards
•Debit cards can be used at an ATM or in a store to
purchase goods. Require PIN for security
Home Banking
•More people using internet to check balances,
transfer money, automatically deposit checks, and
pay bills
ACHs
•Automated clearing houses allow consumers to pay
bills w/out writing checks
Store-value
Cards
•Carry money on them to be used in that store up on
a phone (w/minutes)
LESSON CLOSING
Finish Online Videos
How the Economy Works
Case Study
Finish Any of Open workbook
Test Friday
Review/Work Day tomorrow