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

Bell RingerDo you think “money is the root of all

evil”? Why/why not?

Objectives

1. List the six characteristics of money.

2. Describe bartering and currency.

3. Analyze commodity money and its different uses throughout history.

Introduction

How does money serve the needs of our society?Money provides means for comparing

values of goods and services. Money also serves as a store of value.Without money, we wouldn’t be able to get

the things that we need and want.

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?

http://news.cnet.com/8301-17852_3-20011064-71.html

The Six Characteristics of Money

The six characteristics of money are:DurabilityPortabilityDivisibilityUniformityLimited supplyAcceptability

Durability and Portability

DurabilityMoney must be able to

withstand the physical wear and tear that comes with being used over and over again.

PortabilityMoney 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.

Uniformity People must be able to count and measure

money accurately.

Limited Supply and Acceptability

Limited SupplyMoney would lose its value if there was an

unlimited supply of it. This leads to inflationinflation… something we’ll be

covering soon.

Acceptability Everyone in an economy must be able to take

the objects that serve as money and exchange them for goods and services.

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.

Commodity MoneyCommodity money

consists of objects that have value in and of themselves, like copper or apples, and that are also used as money.

Why is commodity money impractical for use in our modern society?

Salt – Middle East, ca.2000 BCE

Musket balls - Massachusetts, 1600sCigarettes - Russia,

after fall of USSR

Maize – Pre-Columbian Americas

Bell RingerWhy do you think of cash as being valuable?A new Corvette sold in 1971 for $5,500. A

2015 Corvette sells for $70,000. Why is this?

Objectives

1. Learn how money came to be what it is today.

2. List the three types of money.

3. Analyze the sources of money’s values.

“A World of Money”

Take notes as you watch the video. Pay attention to the following:

1. Different types of money across history.2. The relationship between the amount of money

in an economy and prices.

“A World of Money”

How did money go from intrinsic value to just representing value? Is this a good thing or a bad thing? Explain.

Types of Money

Commodity MoneyCommodity money consists of objects

that have value in and of themselves, like copper, guns, or apples, and that are also used as money.

We discussed salt, cigarettes, musket balls, and maize used as commodity money in different times/eras.

Representative MoneyRepresentative 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.

http://www.youtube.com/watch?v=18LYC-bQfeY

Bell Ringer

List the advantages and disadvantages of fiat money.What are the potential costs to the national

economy or society when we use fiat money instead of commodities or representative money?

What are the potential benefits of relying on fiat money? Why is it better than other forms of money?

3 advantages & 3 disadvantages

History of Money in U.S.First federally-printed fiat money, the

“greenback,” printed in 1862 to pay for the Civil War.

1878-1933 – U.S. currency backed by gold.1933-1971 – U.S. currency backed by silver.1971-Today – All U.S. currency is “legal

tender,” or fiat money.

History of Banking in

‘MURICA

Banking Before the Civil War

During the first part of our nation’s history, local banks were informal businesses that merchants managed in addition to their regular trade.

After the American Revolution, the new nation’s leaders decided that they needed to establish a safe, stable banking system.

Two Views of Banking

Federalists wanted a centralized banking system and Alexander Hamilton, as Secretary of the Treasury, proposed a national bank in 1789.

Anti-federalists, like Thomas Jefferson, opposed this plan. They favored states’ rights and a decentralized banking system in which states established and regulated banks within their borders.

This ideological struggle continues to the present day.

The Free Banking Era

As state-charted banks flourished from 1837 to 1863, the sheer number of banks gave rise to a variety of problems, including:Bank runs and panics (a.k.a., recessions)Wildcat banks that were inadequately financed

and had a high rate of failureFraudMany different currencies

Stability in the Later 1800s

The National Banking Acts of 1863 and 1864 gave the federal government the power to:Charter banksRequire that banks hold an adequate amount

of gold and silver reservesIssue a national currency

In 1878, the nation adopted the gold standard, which set a definite value for the dollar.

Banking and the Great DepressionPresident Franklin Roosevelt

acted to restore the banking system in the 1930s by establishing the FDIC (Federal Deposit Insurance Corporation), which insured customer deposits if a bank failed.FDR restricted private

ownership of gold so the Federal Reserve could adequately control the money supply.

The federal government also began regulating banks much more heavily than in the past.

The Savings and Loan (S&L) Crisis

In the late 1970s and 1980s, Congress passed laws to deregulate several industries.This deregulation led to a crisis for the

Savings and Loan industry, which ended up investing in risky commercial ventures.

Led to the largest banking disaster since the Great Depression

Between 1985-1995, over 1,000 S&L with total assets of over $500 billion failed.

Total cost to taxpayers=$125 billion

History of Banking in U.S.

Read pages 256-263 in the textbook.Define bank run, gold standard,

foreclosureOn page 274, answer questions:

1a, 1b, 1c, 2a, 2b, 3a, 3b

Bell Ringer

What do you know about the financial crisis of 2008-2009? What is a recession? What were some of the consequences of the crisis?

Objectives

Define the Great Recession.Explain the economic conditions that

created the Great Recession.

““Understanding the Financial Crisis”Understanding the Financial Crisis”

http://www.youtube.com/watch?v=h4Ns4ltUvfw

““Reasons Behind the Great Recession”Reasons Behind the Great Recession”

https://www.youtube.com/watch?v=Bzc8ZO5XYyo

The Sub-Prime Mortgage Crisis

In early 2000s, mortgage companies and banks began to loan people money who could not afford to pay these loans back. When people began defaulting on their home

loans, it triggered a domino effect that hit banks and investors hard starting in 2008.

It was the worst worldwide financial crisis since the Great Depression and sent the U.S into a recession it is still trying to recover from.

Often called “The Great Recession”

““The Great Recession Explained in 3 The Great Recession Explained in 3 Minutes”Minutes”

https://www.youtube.com/watch?v=Dz_7ikEc26w

The Great Recession News Article

You are a reporter and have been asked by your editor to write a brief news article for a popular magazine about the Great Recession.

Describe the events leading up to and consequences of the Great Recession in roughly two paragraphs

Format your paper like a news article.Some questions to answer: How did it happen?

Who were the key groups or institutions involved? What was the outcome? Etc.

Bell Ringer

• How much do you know about how banking works? Scale of 1-10

• What services that banks provide do you think you will use within the next ten years?

Objectives

1. Describe the basic functions of financial institutions.

2. Explain what factors consumers should consider in evaluating credit cards.

Introduction

What banking services do financial institutions provide?Financial institutions:

Make loans to businessesProvide mortgages to prospective home

buyersIssue credit cards

Functions of Financial Institutions

Storing moneyThey provide a safe place to store money

Saving moneyThey offer people ways to save money through:

Savings accountsChecking accountsCDs (Certificate of Deposit), which offer a

guaranteed rate of interest but cannot be removed until after a specified period of time.

Loans

Financial institutions lend money to consumers and charge interest on those loans.

What is interest?The cost of borrowing money

Loans help consumers:Buy homesPay for collegeStart and grow businesses

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 how much money you make.

Credit Cards

Banks usually charge high interest rates on credit cards.

Consumers are evaluated on how much they can borrow and at what rate based on their credit history and credit score

Having a credit card has increasingly become a necessity instead of a luxury.

The average American household has a credit card debt obligation of

$15,252

How do credit cards work?

http://www.youtube.com/watch?v=qAQnIwSeih8

How does interest work?

http://www.youtube.com/watch?v=GDbGnx8IP4Y

Closure Quiz

1. Americans are prohibited from obtaining a credit card before age _____.

2. What does APR stand for? What does it measure?

3. What is one good way to avoid a mountain of credit card debt?

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. Identify how financial institutions make money.

2. Describe the different types of financial institutions.

Banking Explained – Money and Credit

https://www.youtube.com/watch?v=fTTGALaRZoc

Loans

Many banks loan money to other financial institutions and individuals.

A banking system that only keeps a fraction of its funds on hand and lends out the rest is called fractional reserve banking.

Mortgages and Credit Cards

A mortgage is a specific type of loan that is used to buy real estate.

Banks issue credit cards and lines of credit

Other types of loans include: car, small business, home improvement, etc.

How Banks Make a Profit

Types of Financial Institutions

Jigsaw Activity Pages 269-271“Jigsaw” groups of 4-5“Expert” topics:

Commercial BanksSavings and Loan AssociationsCredit UnionsFinance Companies

Meet with “Expert” group, then report your findings back to your “Jigsaw” group

Types of Financial Institutions

Commercial BanksOffer checking accounts, accept deposits, and

make loansSavings and Loan Associations

Allow people to save up and borrow enough for their own homes

Credit UnionsCooperative lending associations established for

particular groupsFinance Companies

Make installment loans to consumers

Payday Loan Facts

In the U.S., 12 million people borrow nearly $50 billion a year through payday loans.

Average amount borrowed: $375$375

Average amount owed: $800$800

Estimated average APR on payday loans: 385%385%

The rates charged on payday loans can be up to 35 times those charged on credit card loans and 80 times the rates charged on home mortgages.

Source: BusinessInsider.com

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

Key Terms, cont.

credit card: a card entitling its owner to buy goods and services based on the owner’s promise to pay for those goods and services

interest: the price paid for the use of borrowed money

principal: the amount of money borrowed

Closure

• Explain the process through which banks make a profit.