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Unit 8 Money

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I. Three Uses of Money A.Medium of Exchange 1.Any object that is accepted for goods and services 2.Barter- w/o money, trade goods and services are traded for others

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B.Unit of Account 1.Means of comparing the values of goods and services C.Store of Value 1.Money keeps its value in two forms: currency (bills and coins) and deposits (pay debts, convert to currency) 2.Interest- cost of borrowing money

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3.Inflation- value of money goes down, prices go up a.Determined by the Consumer Price Index (CPI)- change in prices of essential goods/services b.Deflation- value of money goes up, prices down

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II. Insurance A.Insurance is essentially a bet between you and the insurance company B.Costs 1.Premium- sum of money paid to the company for insurance 2.Deductible- expenses you must pay before insurer will cover expenses

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III. Credit A.Credit- loans, credit cards, any deferred payment B.Four Cs Creditors look for 1.Capability- ability to repay debt 2.Capital- income or money in the bank 3.Character- willingness to repay debts 4.Collateral- property to secure a loan

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C.Credit Cards 1.Form of revolving credit, borrow money on an ongoing basis 2.Monthly payments based on interest rates 3.At minimum payments, takes a long time to get out of debt

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First Look: Inside the Fed The FedBureau of Printing & Engraving U.S. MintCool Factoids What is it? How does it help the US economy? Its role in the aftermath of 9/11

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Unit 8 Federal Reserve System National Geographic https://www.youtube.com/watch?v=_1NNEgmNc8k Eye of the Storm http://www.youtube.com/watch?v=ziwut6qm7F0

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I. Creation of The Fed A.Federal Reserve Act of 1913- created the Federal Reserve 1.After getting off gold standard, needed federal bank to respond to economy B.Purpose is to lend money to other banks in time of need

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II. Structure of Federal Reserve System A.Board of Governors 1.7 directors, include Chairman (Ben Bernanke) B.Twelve District Reserve Banks

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C.Regulating Money Supply 1.Monetary Policy- actions Fed takes to influence level of GDP (value of economic activity in the country) and rate of inflation 2.Reserve requirement- amount of money banks must keep in Fed banks as a reserve 3.Prime rate- rate of interest for short term loans (to good customers or other banks)

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4.Discount rate- cost of borrowing from the Federal Reserve a.Reducing the rate- encourages banks to borrow more money so they lend more to other people b.Increasing the rate- slows down economy by discouraging borrowing

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5.Fed Policies a.Easy-money policy- reduces rates, lowers reserve requirement, prints currency= more money in economy b.Tight-money policy- increases rates, raises reserve requirement= less money in the economy Be the Fed Chairman http://www.frbsf.org/education/activities/chairman/

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Other Fed Business Automated Clearing House (ACH) -an electronic network that processes electronic debits & credits Direct Deposits: payroll, social security & tax refunds Direct Debits: mortgage payments, utility The Reserve Banks & the EPN (Electronic Payment Network) edit & sort payments and deliver payments as an interoperator between banks.