Federal Reserve And other contributors to the U.S. Economy.

Terms to Know

Discount Interest Rate - Used to determine the present value of future or past cash flows.

Terms to Know

Circulation - Refers to the total value of currency that is engaged in that currency's economy at a given time

Terms to Know

E-Commerce - Commercial transactions conducted electronically on the Internet

What is the Federal Reserve?

It is the Central Bank of the United States that regulates the money supply in the US economy.

What does the Federal Reserve do? It raises and lowers the discount interest rate and puts money into and out of circulation.

Impact of the Federal Reserve

If the Federal Reserve raises the discount rate

– Consumer credit becomes more expensive

– Consumers buy fewer large goods—refrigerators, boats, etc.

Impact of the Federal Reserve

If the Federal reserve lowers the discount rate

– Consumer credit becomes less expensive

– Consumers buy more expensive goods—cars, washing machines, etc.

What are Stocks?

What are Stocks? • Stocks are shares of ownership in corporations

• Shareholders have partial ownership in the corporation

• Corporations are permitted to sell stock to raise capital for the corporation

• Shareholders may receive dividend payments from the corporation

What else is traded?

What else is traded?

Bonds—loans made by the investor to the issuer; the investor is repaid with interest

– Corporate Bonds – Municipal Bonds – Treasury Bonds – US Savings Bonds

What else is traded?

Futures—agreement to buy or sell a commodity (oil, gold, etc.) at some point

What else is traded?

Mutual Funds —combination of individual stocks

Stocks, Bonds, Futures,

and Mutual Funds are called

Securities.

Purpose of the

Stock Exchange

The stock market is where shares of stocks, bonds, and futures are bought and sold (or traded). This can be electronically done.

Purpose of the Stock Exchange

The stock exchange is the actual physical location where stocks are listed and traded.

New York Stock Exchange (NYSE) American Stock Exchange NASDAQ—virtual exchange

Purpose of the Stock Exchange

Provides companies with a way and a place for issuing shares of stock to people who want to invest in the company. The sale of shares of stock is a way for the corporations to raise money.

Function of the Stock Market

Bull Market

Bull Market Stock prices going up or rising.

Consumers are optimistic and buy stock hoping to earn more money.

Consumers buy goods and businesses prosper.

Bear Market

Bear Market Stock prices are going down or falling.

Consumers are pessimistic and reluctant to buy stock.

Investors sell stock so they won’t lose more money

Consumers buy fewer goods and businesses may lose money. Some workers may lose jobs.

E-Commerce Impact on the Economy

E-Commerce Impact on the Economy

Because consumers can purchase goods on the Internet they have more choices in goods.

Global competition is increased and US businesses must compete globally.

Fewer salespeople are needed in stores—a shift in jobs is required. More people are needed in order fulfillment and customer service.

Goods are manufactured just-in-time—as they are needed for distribution.