Transcript Money and Banking Notes PowerPoint

Money, Banking,
Credit & Consumer
Rights
Ch. 20
Money


Replaced the barter
system in traditional
economies
Functions
– Medium of exchange
 Used to trade items
– Store of value
 Reliability to store,
save, and retrieve
– Measure of value
 Can be divisible
 Each one must be equal
to the other
 Not easy to counterfeit
Different types of Money
What is it called when you get
less satisfaction from eating
your 2nd piece of pizza?
1.
2.
3.
4.
Law of Diminishing Returns
Anti-Pizza disease
Full Stomach syndrome
Diminishing Marginal Utility
What is not a factor of
production?
1.
2.
3.
4.
Unions
Labor
Natural Resources
Capital
What type of economy is the
U.S.?
1.
2.
3.
4.
Traditional
Market
Mixed
Command
Banking

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
Brings savers (sellers) &
borrowers (buyers)
together in the market
Savers = deposits
Borrowers = loans
Banks are a business and
have profit motive
Make money off of fees
and interest on loans
Reserve Requirements –
banks want more
deposits so they can loan
more money
What signaled the start of the
Great Depression?
1.
2.
3.
4.
Roosevelt’s Fireside Chats
Bank Holiday
Stock Market Crash
Hoovervilles
Types of Deposit Accounts
1.
Checking Account
– Allows customers to write checks, use debit
cards or withdraw money from an ATM
(Automated Teller Machine)
– Money transactions are quick and efficient
– Money does not stay in the account for long
– Depositor usually receives no interest
– Checking/Debit Cards
 Transfer of funds electronically
 Tied directly to checking accounts
Checking Accounts
Types of Deposit Accounts
cont.
2. Savings Account
– Banks pay interest to customers based on
how much money is deposited
– Money grows larger the longer it is there
– Money remains untouched for longer periods
of time
Savings Account
Sample Bank Book
Types of Deposit Accounts
cont.
3. Certificate of Deposit (CDs)
– Customers loan a certain amount to the bank
for a certain amount of time
 Ex. I bought a $1,000 CD for 1 year at 4%
– Higher rates of interest than savings
– Customers can’t withdraw their money
without a penalty
What are the type of jobs that
usually occur in manufacturing
sectors called?
1.
2.
3.
4.
Rust Belt
Sun Belt
White Collar
Blue Collar
Types of Banks
1.
2.
3.
Commercial Banks – full service to individuals
& businesses (Most common)
Savings & Loan Associations – traditionally
loaned money to people buying homes &
issued only savings accounts
Credit Unions – non-profit – sponsored by
large businesses, labor unions or government
institutions – offer full services at usually lower
prices
Commercial Banks
Credit Unions
FDIC
Federal Deposit Insurance Corporation
 Insures deposited money in the bank up
to $100,000 – Right now $250,000
 Most are FDIC insured

What US event caused the
formation of the FDIC?
1.
2.
3.
4.
9/11
Bombing of Pearl Harbor
Stock Market Crash and Bank Runs
The birth of Mr. Cleland
Loans

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

Agreement for borrowing money with repayment plus
interest
Used to make expensive purchases
Banks make money on the interest paid for a loan
In order to make loans, banks have to have money
To have the money, banks must attract deposit
customers
Can increase the supply of money
Principle – amount borrowed
Interest – cost of borrowing
Interest Rate – rate of cost to borrow
Which of the following best explains
why a business could move from record
sales and production to plant
shutdowns and company layoffs?
1.
2.
3.
4.
Diminishing Marginal Utility
Law of Supply
Law of Demand
Law of Diminishing Returns
Types of Loans
1.
2.
Fixed – interest is set & can’t be changed
Variable – Changes when interest rates
change
Which of the following best
describes scarcity?
1.
2.
3.
4.
Not enough goods for everyone
The amount that people want
Lack of desire to produce enough
resources
Not enough resources to provide for
every desire
Charge Accounts
Buy goods & services at individual stores
& pay for them later
 Credit limit: maximum amount a person
can buy with the promise of payment

Types of Charge Accounts
Installment Account
1.
–
–
Repaid with equal payments over a certain period of time
Part of the payment goes towards interest & part towards the
principle

Car loan or mortgage
Regular Account
2.
–
–
–
–
Billing cycles where a bill is sent at the end
No interest is charged if entire bill is paid
Account can’t be used again until the balance is paid
Interest is charged on the balance not paid

Furniture Stores usually do this. Pay by 2010, certain amount each
month, but with no interest.
Revolving Account
3.
–
–
–
Billing cycles where a bill is sent at the end
Interest charged on portion not paid
Account can still be used until credit limit is reached

Example: Credit Cards
What is the government’s role
in a market economy?
1.
2.
3.
4.
Set price control
Own the means of production
Absolutely no role
Set production quotas
Credit Cards
Make purchases without having the money
 Charge high interest rates – usually @
18%
 Lower interest rates if the customer is
reliable
 Finance Charges – Cost of credit (interest)
expressed in dollars
 APR – Cost of credit (interest) expressed
as a percentage
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Applying for Credit
Fill out application
 Credit Bureau does a credit check
 Creditor may ask for references
 Credit checks show your income, debt and
ability to pay debts in the past

Which economic term best
explains a consumer’s choice of
buying a new car instead of
opening a savings account?
1.
2.
3.
4.
Trade-off
Scarcity
Opportunity cost
Comparative advantage
Credit Rating
Rating of risk: Excellent, Good, Average or Poor
 Ratings have a number associated with them
 3 Credit Bureaus: Experian, Transunion &
Equifax
 Gives lenders an idea of reliability when issuing
loans

– Higher Credit Score = less interest you are charged
on a loan = saving money
Unsecured loans – loan based on reputation
 Secured loans – have collateral to back up the
loan

Credit Bureaus
Which of the following would
have a negative impact on the
GDP?
1.
2.
3.
4.
An
An
An
An
increase
increase
increase
increase
in
in
in
in
exports
imports
production
population
Government Regulations
Equal Credit Opportunity Act: a
person can’t be denied credit because of
race, religion, national origin, gender,
marital status or age
 Usury Laws: Restrict the amount of
interest companies, not banks, can charge

– In North Carolina, it is 8%. Lend neighbor
$100 loan can only receive $8 from interest
What is the unintended side
effect of an action?
1.
2.
3.
4.
Utility
Public Goods
Personality
Externality
Bankruptcy
Debts are so large they can’t be paid back
 Most of what a debtor owns is sold or
given to creditors
 Takes 10 years to reestablish credit

– States can become bankrupt too
Why do elephants face the
threat of extinction while cows
do not?
1.
2.
3.
4.
Cattle are a valuable resource while
elephants have no market value.
There is a high demand for products that
come only from the cow.
There are still lots of cattle that roam
free, while most elephants are in zoos.
Cattle are owned by ranchers, while
elephants are owned by no one.
Consumer Rights
Consumer – someone who buys a product
or service (YOU!)
 Types of Income

– Disposable Income – money remains after
taxes taken out.
 Money to pay for house, car, etc.
– Discretionary Income – money remaining
after paying for necessities
 Either save or spend it
Consumer Rights cont.
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Consumerism – a movement to educate buyers
on purchases and to make sure products are
safe
– Congress laws – Pure Food and Drug Act in 1906
– Private groups – BBB or Better Business Bureau
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Consumer Bill of Rights
– Consumers have…





Right
Right
Right
Right
Right
to
to
to
to
to
a safe product
be informed
choose
be heard
redress
Consumer Responsibilities

Smart Buying Strategies
– Info on products
– Watch out for advertising
– Comparison shopping – find out prices on product
from different stores/internet
 Brand Name vs. Generic
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When product fails
–
–
–
–
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Report it
Check the warranty
Keep a copy of records
Be calm
Make Fair complaints
– Ex.