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Before we get started…
The units in the first quarter dealt with
microeconomics. What is microeconomics? “The study of economic behavior and decision-making in
small units, such as households and firms.”
The rest of the semester will deal mostly with
macroeconomics. What is macroeconomics? “The study of economic behavior and decisions in a nation’s
whole economy.”
Bell Ringer “Surely there never was so evil a thing as money,
which maketh cities into ruinous heaps, and banisheth
men from their houses, and turneth their thoughts from
good unto evil.” –Sophocles
“For the love of money is a root of all kinds of evil.
Some people, eager for money, have wandered from
the faith and pierced themselves with many griefs.”
1 Timothy 6:10
“Few men have virtue enough to withstand the highest
bidder.” –George Washington
Bell Ringer
“So you think that money is the root of all evil?
Have you ever asked what is the root of money?”
–Ayn Rand
“The lack of money is the root of all evil.”
–Mark Twain
“Cash rules everything around me. C.R.E.A.M.,
get the money. Dollar dollar bill y’all.”
–Method Man
Objectives
1. Describe currency and bartering.
2. Analyze money and its different uses
throughout history.
3. Identify the six characteristics of money.
Currency
The coins and paper bills people use as
money are called currency.
In the past, people have used many things
as currency including cattle, salt, precious
stones, fur, and dried fish.
What else do people use as currency
today?
Barter
Without money, people acquire goods and
services through barter.
Many parts of the world still use bartering but as
an economy becomes more specialized, it
becomes too difficult to establish the relative
value of items to be bartered.
Money, therefore, makes exchanges much
easier.
The Six Characteristics of Money
The six characteristics of money are:
Durability
Portability
Divisibility
Uniformity
Limited supply
Acceptability
Durability and Portability
Durability
Money must be able to withstand the physical wear and tear
that comes with being used over and over again.
Portability
Money must be easily carried by people. Paper money and
coins work because they are small and light.
Divisibility and Uniformity
Divisibility Money must be easily divided into smaller denominations.
UniformityMoney must be made to look the same so people can count and
measure it accurately.
Limited Supply and Acceptability
Limited Supply
Money would lose its value if there was an unlimited
supply of it.
This leads to inflation… something we’ll be covering
soon.
Acceptability
Everyone in an economy must be willing to accept the
money and exchange it for goods and services.
Bell Ringer
From what source(s) does money get
its value?
A new Corvette sold in 1971 for $5,500.
A 2018 Corvette sells for $75,000. Why
is this?
Objectives
1. Learn how money came to be what
it is today.
2. Describe the three types of money.
3. Analyze the sources of money’s
value.
Commodity Money
Commodity money consists of objects that
have value in and of themselves that are also
used as money.
Why is commodity money impractical for use in
our modern society?
Representative Money
Representative money- currency that has value because it can be exchanged for something else of value.
Early representative money took the form of paper receipts for gold and silver.People left their gold in goldsmith’s safes and would carry
paper ownership receipts to show how much gold they owned.
Fiat Money
United States money today is fiat money,
which has value because a government has
decreed that it is an acceptable means to pay
debts.
Citizens have confidence that the money will be
accepted.
Because the Federal Reserve controls the supply, it
remains in limited supply, which makes it valuable.
https://www.youtube.com/watch?v=L04VLaZX1y8
What are the disadvantages of using fiat money instead of commodities or representative money?
The unlimited power of governments to “print” up money whenever they want.
Fiat currencies will always lose value over time.
Fiat money always has the potential to drop to zero value.
Fiat Money
What are the potential benefits of relying on fiat money?
It is easy to create and transport.
The money supply grows as the economy grows, which can make the economy more stable.
Money can be quickly created and issued in emergency situations, such as during war.
Fiat Money
What is something that you can
remember being a lot less expensive
when you were a kid?
1982
2014
Bell Ringer
What is inflation?
Inflation is a general upward
movement in prices.
It is caused when the money supply
(total amount of money in circulation)
exceeds the output of goods and
services in the economy
What causes inflation?
Inflation occurs as a result of federal
governments printing too much
money.
Who prints the money in the U.S.?The Federal Reserve (aka, The Fed)
The central bank of the United States
1946 to 1948 - 8% annually
1948 to 1970 - 2% annually
1969 to 1979 - Prices doubled
Currently (projected) – 2.2%
Recent History of Inflation
http://www.usinflationcalculator.com/inflation/current-inflation-rates/
Recent History of Inflation
Is there anything wrong with a slow and
steady rate of inflation?
No, especially when the inflation rate is
anticipated.
It can raise prices (which encourages
business growth) and boost wages (which
increases worker productivity).
Hyperinflation
Hyperinflation is “out of control” inflation,
with annual inflation rates usually between
100-500%.
Examples of Hyperinflation
In 1923, the German mark inflated from
2,000 to the dollar to 4.2 trillion to the
dollar.
Examples of Hyperinflation
In 2008, the yearly
inflation rate in
Zimbabwe reached
over 80 billion percent.
At one point, prices
were doubling twice a
day.
• How much do you know
about how banking works?
Scale of 1-5
• What services that banks
provide do you think you will
use within the next ten years?
Bell Ringer
Objectives
1. Identify how financial
institutions make
money.
2. Describe the different
types of financial
institutions.
Loans
Many banks loan money to other financial institutions and individuals.
Fractional reserve banking is the system where a bank only keeps a fraction of its funds on hand and lends out the rest.
Most banks choose to lend up to 90 percent of their assets.
“Expert” Textbook Activity
Groups of 4-5
Textbook Pages 269-271
“Expert” topics:
Commercial Banks
Savings and Loan Associations
Finance Companies
Credit Unions
Read through your “Expert” topic, then
report your findings back to your group
Types of Financial Institutions
Commercial Banks
Offer checking accounts, accept deposits, and make loans
Savings and Loan AssociationsAllow people to save up and borrow enough for their own homes
Finance CompaniesMake installment loans to consumers
Credit Unions
Cooperative lending associations established for particular groups
Pros/Cons of Credit Unions
Member owned
Not for-profit
Better interest rates
and lower fees
Federally-insured, just
like banks
Open only to members
of a certain group
Branch and ATM
locations are often
limited
Less access to large
loans
Closure
• Explain the function of
banks in an economy and the
process through which they
make a profit.
Key Terms
money supply: all the money available in the United
States economy
fractional reserve banking: a banking system that keeps
only a fraction of its funds on hand and lends out the
remainder
mortgage: a specific type of loan that is used to buy real
estate
interest: the price paid for the use of borrowed money
principal: the amount of money borrowed
Bell Ringer
List one service that a bank provides that
you think you will use within the next ten
years (checking account, loan, credit
card, etc.)
How will the bank make money by
providing that service?
What do you get in return?
Objectives
1. Define credit history and credit
score
2. Explain what factors
consumers should consider in
evaluating credit cards.
Loans
Financial institutions lend money to consumers and charge interest on those loans.
What is interest?
The cost of borrowing money
Interest is typically measured as an APR (Annual Percentage Rate).
In addition, interest charges can either be fixed or variable.
Credit Cards
How do credit cards work??
Credit cards entitle their owners to
buy goods and services based on
the owners promise to pay.
The amount you can borrow is tied
to your credit history and credit
score.
Credit Score
Your credit score is number that depicts a
your “creditworthiness” to potential lenders.
The higher the score, the more financially
trustworthy a person is considered to be.
Lowest: 300 Highest: 850
A credit score above 700 is considered good.
Payment History: On-time
payments or delinquencies
Amounts Owed: Percentage
of credit limits available
Length of Credit History:
How long you’ve maintained
credit responsibility
New Credit: Number of credit
inquiries and credit lines
opened in last 12-18 months
Types of Credit Used:
Installment vs. Revolving
Loans
Bell Ringer
What would you (legally) do if you
had to come up with $500 by the
end of the week?
Objectives
Define payday loans and the
services they provide
Identify the inherent dangers in short-
term credit advances
Generate alternative solutions to
when a desperate need for quick
income arises
Payday Loans
What do you know about “payday
loans”? How do they work?
Moneytree Lending Ad
What images or messages is the
Moneytree Lending ad trying to
convey?
Payday Loans
A payday loan is a type of short-term borrowing where
an individual borrows a small amount at a very high rate
of interest.
The borrower typically writes a post-dated personal
check in the amount they wish to borrow plus a fee in
exchange for cash.
The lender holds onto the check and cashes it on the
agreed upon date, usually the borrower's next payday.
Payday Loan Scenario
Imagine you desperately need $100.
You go to Moneytree, write a check for $118, and
they give you $100 cash.
In two weeks, they cash your check. Effectively, you have been charged 18 percent to use the $100 for
two weeks.
What if you don’t have the money? Moneytree will
hold the check another two weeks for an additional
18 percent. Every two weeks that you don’t have the money for them to cash your check, they charge you
an additional 18 percent interest.
Payday Loan Scenario
Work with an elbow partner to answer the
following questions:
Moneytree’s lending rate is 18 percent
every two weeks. There are 26 two-week
periods in a year. What total percent
would this be in a year?
A: 468 percent
Payday Loan Scenario
The formula for calculating simple
interest is A = P(1 + rt)A=Amount owed; P=Principle borrowed;
r=Interest rate (decimal); t=time (in years)
How much would you owe if you
couldn’t pay after one year?
A: $568
Payday Loan Facts
In the U.S., 12 million people borrow nearly $50 billion a year through payday loans.
Average amount borrowed: $375
Average amount owed: $800
Estimated average APR on payday loans: 385%
The rates charged on payday loans can be up to 35 timesthose charged on credit card loans and 80 times the rates charged on home mortgages.
Source: BusinessInsider.com
Possible Alternatives
Think back to the Bell Ringer…
What if you absolutely had to come up with $500 that you don’t have by the end of the week? What could you (legally) do?
Working with a partner, come up with 3-5 possible solutions to this problem.
Be ready to share your best answer with the class.
Possible Alternatives
Personal loan from bank/credit union
Payroll advance from employer
Borrow from friends/family
Sell/pawn personal goods
Sell blood/plasma
Ask for extension from current creditor
Government assistance program
Emergency assistance providers
Borrow against life insurance or retirement account
Closure - Three W’s
What (did you learn)?
So What (is the relevancy or
importance)?
Now What (will you do with this
information)?