economics notes – ch 10 lto: understand money & banking

Economics Notes – Ch 10

LTO: Understand Money & Banking

Guided Note Taking

• Copy the notes and explanations provided in class

• For the remainder, use the Skeleton (Notes framework) provided and fill it in with your summary of key points from the book. Use your own words whenever possible. IF you use phrases from the book, you must be able to explain what they mean.

Pre-Read

• Write down the Vocabulary. Leave room for definitions.

• Write down the Assessment Questions. Leave plenty of room for explanations.

THESE ARE CLUES OF WHAT IS IMPORTANT IN YOUR READINGS. MAKE SURE YOU PAY ATTENTION TO THESE TOPICS

Focus Questions

• Would printing more money solve the debt problem for the U.S.? Explain why/why not.

• Would printing more money solve your cash shortage? Explain

• Is the U.S. dollar valuable? Why/why not?

Section 1 STGs

1.

2.

3.

Three Uses of Money

1. Medium of Exchange (instead of barter)Faster, easier & more practical – used to pay for goods/services2. Unit of AccountKnown, uniform value ($1 is worth 100 pennies….) It allows you to compare where is the better deal. A shirt priced at $10 in MM compared to $15 in LA. 3. Store of ValueLasting value. Will not expire, mold, rot…compared to beef, salt,…Exception: Value of money decreased during periods of high inflation

Six Characteristics of MoneyDurability Portability Divisibility Uniformity Limited

SupplyAcceptability

Long lastingStands up to wear and tear of daily use. Easy to replace when it wears out.

Light and easy to carry

Can be apportioned into smaller units of value. Ex: $20 bill does NOT have to be cut into 4 pieces; change can be made – 4 $5 bills.

Two units of same money is worth the same. Ex: $1 is worth 100 pennies in SD and in NY. Or two different $1 bills are worth the same.

The more plentiful something is, the less valuable it is.

Has to be some form that people are willing to take as payment or use.

In each column, write a Characteristic of Money. In the next row beneath that Characteristic, write the explanation in your own words. Leave out unnecessary words, keep the main points. Use examples whenever possible. COME UP WITH YOUR OWN CURRENCY:

Sources of Money’s Value(Types of Money)

Sources of Money

Value

Commodity MoneySalt, tobacco, corn, gold…

Fiat MoneyGovernment declares that it is “legal tender “ good for all

debts, private and public

Representative MoneyIOUs, Greenbacks, U.S. $ 1870s - 1933

Explain & Give an Example for each.

QuizPut the question (topic) back into your answer.1. What type of money(source of money’s value) did

the average person use in ancient times? (primitive tribes)

In ancient times, ______ money was used, such as…2. What type of money did the U.S. use 200 years ago?Two hundred years ago, the U.S. used __________ money backed by the Gold Standard. 3. What type of money does the U.S. use today?Today, the U.S. uses ______________________.

Section 2 The History of American Banking

STGs

1. 2. 3.

Leave a blank line between the STGs and the body of the notes.

Pre-Read

• Write down the Vocabulary. Leave room for definitions.

• Write down the Assessment Questions. Leave plenty of room for explanations.

THESE ARE CLUES OF WHAT IS IMPORTANT IN YOUR READINGS. MAKE SURE YOU PAY ATTENTION TO THESE TOPICS

The Different Eras in Banking

• How many different eras are there in American Banking? (Add one more for the Bank Bailouts that occurred after the printing of this book)

1. Before the Civil War2. Later 1800s3. Early 20th Century4. Later 20th Century5. Bank Bailouts of the 21st Century

Two Views of Banking

Centralize Decentralize

Pros

Cons

Two Views of Banking

Before the Civil War – Era 1

• Centralized or Decentralized?• Why is it important to Centralize?• Explain attempts to Centralize:Two Acts1.

2.

Before the Civil WarThe Free Banking Era

• IS NOT free banking or no fee checking!!!!What is it?

The Four Problems with the Free Banking Era:1. 2. 3. 4.

Later 1800s• Key Events & Dates:

Later 1800s – Era 2

• By 1860:

Later 1800s

• 1861:

Later 1800s

• 1863 & 1864

Later 1800s

• 1870s

Early 20th Century (Early 1900s)Era 3

Explain the THREE main events in this era:1. The Federal Reserve System2. Banking and the Great Depression3. Banking Reforms

The Federal Reserve Act 1913

• Established the Federal Reserve System• National central bank • Twelve regional Federal Reserve Banks• Nationally chartered bank required to join The Fed• Supervised by Federal Reserve Board - appointed by

the U.S. President• Short term loans to Member Banks – to meet short

term cash needs• National Currency – Supply is regulated in The Fed

through Prime Rate and Reserve Requirements

The Great Depression & BankingPgs 254-255

• Great Depression began in 1929• Stock Market Crash• Many Bank Runs• Many families lost their farms and homes• Businesses closed• High unemployment rate (25%)• Many homeless & hungry (THERE WAS NO

WELFARE)• THIS ALL LED TO BANKING REFORMS & NEW DEAL

Banking Reforms-Early 1900s(Early 20th Century)

• 1933 FDIC – Federal Deposit Insurance Corporation

• Banks’ deposits are insured by the federal government

• If bank fails, depositors (YOU) are insured up to $250,000 per account

Later – 20th CenturyEra 4

• How was it different than the 1933 – 1960s period?

Banking – Later 20th Century1. 1970s & 1980s:– Fewer regulations of the Banking Industry– This led to the…

2. Savings & Loan Crisis (S & L Crisis)– Caused by:• Deregulation – S & Ls unprepared for the competition• High interest rates• Bad Loans made to businesses with little chance of repayment• Fraud – People lied to get loans, execs partied & charged it to

the S & L• EX: Lincoln Savings & Loan

3. 1989-FIRREA: S & Ls insured under FDIC, no longer independent of federal oversight.

Banking in the Later 20th Century

Banking in the 1990s

• In 1999:Repealed the Glass-Steagall Act of 1933– Banks to sell stocks and and bonds (corporate,…

not just U.S. Savings Bonds)• Allowed more bank mergers

Banking in the 21st CenturyEra 5

• Bank Bailouts– How much was it? – What factors (economic & political) caused it?

– Bonuses for the Bank Executives of Failed Banks

• Rising Fees & the Occupy Movement (Bank of America)

Pre-Read

• Write down the Vocabulary. Leave room for definitions.

• Write down the Assessment Questions. Leave plenty of room for explanations.

THESE ARE CLUES OF WHAT IS IMPORTANT IN YOUR READINGS. MAKE SURE YOU PAY ATTENTION TO THESE TOPICS

Section 3 Banking Today

STGs (copy these from the book)1.

2.

3.

4.

Guided Note Taking

• Copy the notes and explanations provided in class

• For the remainder, use the Skeleton (Notes framework) provided and fill it in with your summary of key points from the book. Use your own words whenever possible. IF you use phrases from the book, you must be able to explain what they mean.

Fractional Reserve System

• Pg 260-Figure 10.6 – Copy the notes from class on the above diagram. Allow a whole page for notes on this topic. You will explain how the Fractional Reserve System works.

Compound Interest

• Pg 261 – Figure 10.7• Look at this Figure while listening to the

explanation in class.• Simple Interest: Paying Interest on the

Principal• Compound Interest: Paying Interest on the

(Principal AND the Interest on the Principal)• Compound Interest= I*P+I (P+I)

Measuring Money SupplyPg. 259

M1______

• • • •

M2______

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•

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Five Types of Financial Institutions

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5.

Seven Functions ofFinancial Institutions Pg 259-262

Function Benefit

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2.

3.

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7.

Electronic Banking Pg 263-64

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The End