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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

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unit 4 money banking and finance

Unit 4: Money, Banking, and Finance

Ch. 10: Money and Banking

Ch. 11: Financial Markets

chapter 10 1
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/0-13-369833-5/Flash/Ch10/Econ_OnlineLectureNotes_ch10_s1.swf
ch 10 introduction
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
3 Uses of Money
  • Money is anything that can serve as……
    • Medium of Exchange
    • Unit of Account
    • Store of Value
  • 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
  • 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/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
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
Lesson Closing
  • Frontline Video: The Warning
    • http://www.pbs.org/wgbh/pages/frontline/warning/view/?utm_campaign=viewpage&utm_medium=grid&utm_source=grid
  • Complete Workbook
    • Pgs. 90,15
  • HW/Bell Work for tomorrow
    • Complete S.1 Quiz
10 2 bell work
10.2 Bell Work


Complete S.1 Quiz

  • “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/0-13-369833-5/Flash/Ch10/Econ_OnlineLectureNotes_ch10_s2.swf
  • 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
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
      • Federalists: Wanted centralized banking system
        • National bank
      • Anti-federalists: Opposed plan
        • Decentralized banking; owned/regulated by each state
1 st bank of us
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
2 nd bank of u s
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
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)
      • Located in remote places where only “wildcats” lived
    • Fraud
      • 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
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
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
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
Two Crises for Banking


Sub-Prime Mortgage

  • 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
  • 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 closing1
Lesson Closing
  • Workbook pages
    • 91 and 23
  • S2 Quiz for tomorrow
  • Finish “Warning Video”
10 3 bell work
10.3 Bell Work

Watch 2 Online Sources

Visual Glossary

Action Graph

Finish Sect. 2 Quiz

  • “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/0-13-369833-5/Flash/Ch10/Econ_OnlineLectureNotes_ch10_s3.swf
  • 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
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
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 institutions1
Functions of Financial Institutions
  • Loans
    • Lend money to people and charge interest on loans
    • Loans help consumers:
      • Buy homes, pay for college, start/grow businesses
    • Many banks loan money to other financial institutions/individuals
      • 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
Simple and Compound Interest
  • Interest is price paid for use of borrowed money
  • Principal is amount borrowed
  • Simple Interest
    • Amount of interest paid only on the principal
  • Compound interest
    • Amount paid on both principal and gained interest
  • Interest is how banks make money!
    • They take in more than they pay out
electronic banking
Electronic Banking

Has Increased with the increasing importance of computers

lesson closing2
Lesson Closing
  • Finish Online Videos
    • How the Economy Works
    • Case Study
  • Finish Any of Open workbook
  • Test Friday
    • Review/Work Day tomorrow