Transcript Federal Reserve - davis.k12.ut.us

Understanding
Money and
the Federal
Reserve
What is Money?
 Money
is anything that serves these three
functions:
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Medium of exchange—If can be used to
buy goods and services
Store of value—It keeps its purchasing
power over time
Unit of account—It tells you how much
different goods and services are worth
Video
A Good Money System
 Must
be PORTABLE, DIVISIBLE, DURABLE,
STABLE and UNIQUE

Coins/Paper
 Meet
standards for useful money
 Easier to take to market than goods
 Different-sized coins can be made to
represent different values
 When everybody agrees on the value of
coins, the value of money is relatively stable
 Coins last for thousands of years
 Readily identifiable by color and graphics
with factors to prevent counterfeiting
Role of U.S. Department of the
Treasury
 Managing
Federal finances
 Collecting taxes paid to the I.R.S.
 Printing and minting currency through the
Bureau of Engraving and the U.S. Mint
 Managing Government accounts and
public debt
 Enforcing Federal finance and tax laws
 Investigate and prosecute tax evaders,
counterfeiters and forgers
Federal Reserve—”The Fed”
Regulates the nation’s money supply through
monetary policy
 (1) Central bank of the United States

It is composed of 12 regional Reserve Banks located
in cities across the nation from New York to San
Francisco and a Board of Governors in Washington
D.C.

Printout: Purpose of Federal Reserve
Federal Reserve—”The Fed”

(2) Serves as a Bank for Banks
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Has regulatory and supervisory responsibilities
over banks to ensure that banks act in the
public’s interest
Provides currency and coin for banks
Provides written check/debit card clearing
services for banks
Sets a percentage of money that must be kept on
reserve for each bank

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When Fed increases the reserve requirement banks
have less money for loans
When Fed decreased the reserve requirement banks
have more money for loans
Federal Reserve—”The Fed”
 (3)

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Serves as a Bank for the U.S. Government
Provides checking account with U.S. Treasury
All revenue generated by taxes and all
outgoing government payments are handled
through this account
 (4)
Responsible for managing the money
supply of the United States
 Making
sure that the prices of goods and
services are relatively stable over time
Federal Reserve
 Why
does money supply need to be
controlled?

Keep U.S. economy from growing too fast or too
slow
 Too
much money available = Prices go up
INFLATION
 Too little money available = Prices go down
DEFLATION
 If too much money is taken out of economy =
RECESSION
 DEPRESSION: Recession that lasts longer and has a
larger decline in business activity.
Money, Currency, Federal
Reserve Note
 U.S.
money is NOT backed by gold stored at
Ft. Knox

1930: End of the Gold Standard
 U.S.
money has value based on the
confidence in and strength of the U.S.
government

Fiat money (Money that is not backed by a
product)
 Printout:
Pictures On Currency
 Printout: Lincoln5
Money, Currency, Federal
Reserve Note
 The
largest denomination Federal Reserve
note ever issued for public circulation was
the $10,000 note
 On July 14, 1969, the Federal Reserve and
Department of the Treasury announced
that denominations of $500, $1,000, $5,000
and $10,000 would be discontinued due
to lack of use
 Largest denomination today is $100
Money, Currency, Federal
Reserve Note

If the Federal Serve encounters counterfeit
currency, the notes are forwarded to Secret
Service

Secret Service was initially created to investigate
counterfeiting U.S. currency during the Civil War

After the 1901 assassination of President William
McKinley, Congress directed the Service to protect
the President, Vice President, their immediate
families, former presidents and their spouses,
foreign visitors and presidential and vice
presidential candidates
“Cashless Society”
Printout: Cashless Society
 Methods
of receiving and/or earning money or
paying for goods and services other than cash:
 Barter: Is the trading of goods and services for
other goods and services directly
 Gift/Cash Card: Have a
limited dollar value on the
card
 Debit Card: Withdraw
directly from bank checking
or savings account
 Is
there a fee?
 When is a credit transaction?
“Cashless Society”
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Prepaid Debit Card:
Allows consumers
without credit/debit
card or bank account
to make card
purchases or get cash
from ATM
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Advantage: Cannot
overdraw
Disadvantage: Fees
Check
Cashiers Check or
Bank Check
“Cashless Society”
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Money Order
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Credit Card
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Payment order for a pre-specified
amount of money. Because it is
required that the funds be
prepaid for the amount shown on
it, it is a more trusted method of
payment than a check.
A plastic card that can be used
by the holder to make purchases
or obtain cash advances using a
line of credit made available by
the card-issuing financial
institution.
Electronic Transfer(EFT)
(E-Cash)

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Online bill pay
Send cash by wire (PayPal.com)
“Cashless Society”
 Earning
Interest/Dividend
on Savings in a
Depository
Institution
Sources of Income

Printout: Sources of Income
How money enters our lives:

Employment
Entrepreneur
 Overtime pay
 Freelance
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Investments
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Interest/Dividends
Profit from sale of goods or services (eBay)
Windfall income:
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Lottery
Gambling
Inheritance
Gifts
Factors Influencing Income
 Capacity
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to earn:
Level of Education
Skills/Training
Knowledge/Experience
 How
good are you at what you do
 Generally,
in our society, people with higher
education and more skills earn more money
http://www.bls.gov/emp/ep-chart_001.htm
Factors Influencing Income
 Job
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Supply and Demand
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opportunities:
Number of Jobs VS Number of Applicants
Upward mobility opportunities
Work habits such s reliability, oral and
written communication, problem solving,
ability to work as a team
State of the Economy
(Recession/Depression)
 Rate
of unemployment
Factors Influencing Income
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Purchasing Power From Inflation/Deflation
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How much money is in circulation
Consumer Spending:
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Consumer Prices:
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How much purchasing power does the dollar have
Prices of goods and services
Interest Rates
Taxation
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Income tax
Sales tax
Property tax