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

Will Smith• http://www.bing.com/videos/search?q=will+smith+I+will+die+on+the

+treadmill&FORM=VIRE1#view=detail&mid=18C5DF8E6C8FBD5DC09718C5DF8E6C8FBD5DC097

Self-control strategies

4

…against “the hourly temptations”

Today’s study goal:

Time and place:

Obstacles:

If-then plan:

If , then Obstacle (time and place) Action to overcome

obstacle

Making plans…

5Duckworth, 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.

…improves academic performance

6

MCII Control77

77.5

78

78.5

79

79.5

80

80.5

GPA

MCII Control41.8

4242.242.442.642.8

4343.243.4

Atten

danc

e

MCII Control3.25

3.33.35

3.43.45

3.53.55

3.63.65

3.73.75

Cond

uct

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.

Where you look matters

7

8

Turn off the cell phone at home!

Out of sight, out of mind…

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What happens when you miss the target

The Car AnalogyThe 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. 3rd 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

For now we will only focus on Fiscal Policy.

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The Multiplier Effect

Why do cities want the Superbowl in their stadium?

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Economics lesson on multiplier activity

Unit 4: Money and Monetary

Policy

15

THE FED

Monetary Policy

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How the FED Stabilizes the Economy

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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.

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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?

The Reserve RequirementThe 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 MULTIPLIER20

Reserve requiermentshttp://www.fte.org/teacher-resources/lesson-plans/efiahlessons/show-me-the-money-activity/

Activity demonstrates1. How loans are made2. How loans from one bank become deposits in another bank3. The money multiplier4. How the reserve requirement influences the MM5. Higher reserve requirement, slows down the car, lower speeds it up

Adjusting the Reserve Requirement1. 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

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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.

FED You

How are you going to remember?When the government sells bonds, you give them money. This decreases the money supply.

BUY

SELL

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Buy and selling of bonds

The Discount RateThe 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

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Fed. game• http://sffed-education.org/chairman/

• Manipulate the discount rate