Unit 8 “Money”

I. Three Uses of Money

A. Medium of Exchange1. Any object that is

accepted for goods and services

2. Barter- w/o money, trade goods and services are traded for others

B. Unit of Account1. Means of comparing the values of goods and services

C. Store of Value1. Money keeps its value in two forms: currency (bills and

coins) and deposits (pay debts, convert to currency)2. Interest- cost of borrowing money

3. Inflation- value of money goes down, prices go upa. Determined by the Consumer Price Index (CPI)-

change in prices of essential goods/servicesb. Deflation- value of money goes up, prices down

II. InsuranceA. Insurance is essentially a

bet between you and the insurance company

B. Costs1. Premium- sum of money

paid to the company for insurance

2. Deductible- expenses you must pay before insurer will cover expenses

III. CreditA. Credit- loans, credit cards,

any deferred paymentB. 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

C. Credit Cards1. Form of revolving credit, borrow money on

an ongoing basis2. Monthly payments based on interest rates3. At minimum payments, takes a long time to

get out of debt

First Look: Inside the FedThe Fed Bureau of

Printing & Engraving

U.S. Mint Cool Factoids

What is it?

How does it help the US economy?

It’s role in the aftermath of 9/11

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

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

II. Structure of Federal Reserve SystemA. Board of Governors

1. 7 directors, include Chairman (Ben Bernanke)

B. Twelve District Reserve Banks

C. Regulating Money Supply1. 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)

4. Discount rate- cost of borrowing from the Federal Reservea. Reducing the rate- encourages banks to borrow

more money so they lend more to other peopleb. Increasing the rate- slows down economy by

discouraging borrowing

5. Fed Policiesa. 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 Chairmanhttp://www.frbsf.org/education/activities/chairman/

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.