Policy #13: Banking1. Taxing, spending,
and borrowing is monetary policy.
2. Trading a Coke for a Sprite is also called bartering.
3. Cutting taxes on the wealthy & businesses is also called the snow theory.
Why do we have banks?
• You need a safe place to keep your money – deposit in bank– Who protects your
deposits today?
• You need $ - banks will loan it to you w/interest
Balance Sheet: financial accounts
• Assets: anything owned (+)• Liability: anything owed (-)•Net worth: assets – liability
Is a car an asset or a liability?
Balance Sheet • Determine which is an asset and
which is a liability:– Credit card balance of $5,000– House that is worth $300,000– Mortgage of $275,000– Savings account with $2,000
• What is your net worth?
Regulating BanksThe Federal Reserve Board
(The Fed)
• This is the bank for banks (the national bank)
• Board of Governors – appointed by Pres and confirmed by S
Functions of the Fed1. Regulates money supply
• Amount in circulation• M1: currency & checking accts held
by public• M2: M1 + savings & money markets• Helps control inflation
2. Reserves: each bank must keep a certain amount of cash on hand or at the Fed
3. Determines interest rates: Fed loans $ to banks called discount rate: lower rate given to banks
• Banks loan out money to best customers at prime rate• Today’s prime rate = 3.25%• In 2006 = 8.00% prime rate • Today’s discount rate = 0.75% • In 2006 – 6% discount rate
• Why the change?
PP# 14: Balancing a Checkbook
• Check writing
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