Transcript D. The US Government`s Bailout Plan

Banking Crisis – October 2008
Name ______________________
Date _______________Period ___
A. How Banks Work
Car Loans
Savings accts
Home Loans
Checking accts
Credit Cards
Certificates of deposit
Corporate Loans
1. Banks make a profit by charging a ____________ interest rate than they pay on deposits.
2. Banks may loan out 95% of the money they have deposited. If all of the people who deposited money in the bank went to
collect it on the same day, the bank would ___________. We call this a “________ on the bank.”
B. Banks Rely on Each Other
$
$
$
$
3. Banks typically make many overnight loans to each other ... money that is used to loan to
______________
4.
“Commercial Paper” is a very ___________ term IOU from a corporation promising to
repay a loan within 1 – 100 days; essentially it’s a corporate bond.
5.
Money raised from commercial paper is used to buy capital, pay salaries, etc. List 3
capital items Southwest Airlines might buy: ___________________________________
6.
A well-functioning financial system is considered _____________ to keeping an
economy running.
C. Circular Flow
High Schooler Michelle
6. What happens to visits to
Peter Piper Pizza if Mr.
Patel loses his job?
__________________
7.
What happens to Michelle?
____________________
8.
Patel Family –
Nikil, Neha, Arvin & Leena
How does Neha get her
nails done?
____________________
9.
Lilia – Nail Tech
Mrs. Keith –
So then does Lilia buy a
ticket home for the
holidays? _______
10. Which worker is probably
the safest?
elementary teacher
____________________
Neighbor Boy - Jake
11. We call this the multiplier effect – when one person reduces her spending, she causes less income for the next person
who must reduce his spending, causing less _____________ for the next person. In many ways, it’s advisable to keep
_______________.
D. The US Government’s Bailout Plan
Provisions of the Plan
(1)
(2)
buy bad assets – mostly _______________
backed securities – from banks
USA – our GDP (same as our annual income):
$ 13,807,000,000,000
our government’s 2007 receipts:
2,540,000,000,000
our government’s 2007 expenditures:
2,784,000,000,000
our government’s 2007 spending War in Iraq:
173,000,000,000
amount of proposed bailout of banks:
700,000,000,000
buy non-voting _____________ in banks.
http://www.bea.gov
http://www.census.gov
Banking Crisis – October 2008
A. How Banks Work
Name ______________________
Car Loans
Savings accts
Home Loans
Checking accts
Credit Cards
Certificates of deposit
Corporate Loans
Date _______________Period ___
1. Banks make a profit by charging a __higher__ interest rate than they pay on deposits.
2. Banks may loan out 95% of the money they have deposited; if all of the people who deposited money in the bank went to
collect it on the same day, the bank would _fail__. We call this a “_run_ on the bank.”
B. Banks Rely on Each Other
$
$
$
$
3. Banks typically make many overnight loans to each other ... money that is used to loan to
_corporations__
4.
Commercial Paper is a very _short_ term IOU from a corporation promising to repay a
loan within 1 – 100 days; same thing as a bond - it’s a loan.
5.
Money raised from commercial paper is used to buy capital, pay salaries, etc. List 3
capital items Southwest Airlines might buy: _new plane, new gate, luggage
movers___
6.
A well-functioning financial system is considered _essential_ to keeping an economy
running.
C. Circular Flow
High Schooler Michelle
6. What happens to visits to
Peter Piper Pizza if Mr.
Patel loses his job?
_many less__
7.
What happens to
Michelle? _she__
_loses her job__
Patel Family – Nikil,
Neha, Arvin & Leena
8.
How does Neha get
her nails done?
_herself__
9.
Lilia – Nail Tech
Mrs. Keith –
elementary teacher
So then does Lilia buy
a ticket home for the
holidays? _no__
10. Which worker is
probably the safest?
Neighbor Boy - Brandon
__the teacher!___
11. We call this the multiplier effect – when one person reduces her spending, she causes less income for the next person
who must reduce his spending, causing less _income_ for the next person. In many ways, it’s advisable to keep
__spending!_.
USA – our GDP (same as our annual income):
$ 13,807,000,000,000
D. The US Government’s Bailout Plan
Provisions of the Plan
(1)
(2)
buy bad assets – mostly _mortgage-__
backed securities – from banks
buy non-voting _stakes_ in banks.
our government’s 2007 receipts:
2,540,000,000,000
our government’s 2007 expenditures:
2,784,000,000,000
our government’s 2007 spending War in Iraq:
173,000,000,000
amount of proposed bailout of banks:
700,000,000,000
http://www.bea.gov
http://www.census.gov
High Schooler - Michelle
Patel Family – Nikil,
Neha, Arvin & Leena
Lilia – Nail Tech
Neighbor Boy - Brandon
Mrs. Keith –
elementary teacher
$
$
$
$
$ $
$
$
$
$
commercial paper – short
term debt instrument –
like a bond – issued by a
corporation or a bank to
finance short term needs