Before we get started…

The units in the first quarter dealt with

microeconomics. What is microeconomics? “The study of economic behavior and decision-making in

small units, such as households and firms.”

The rest of the semester will deal mostly with

macroeconomics. What is macroeconomics? “The study of economic behavior and decisions in a nation’s

whole economy.”

Bell Ringer “Surely there never was so evil a thing as money,

which maketh cities into ruinous heaps, and banisheth

men from their houses, and turneth their thoughts from

good unto evil.” –Sophocles

“For the love of money is a root of all kinds of evil.

Some people, eager for money, have wandered from

the faith and pierced themselves with many griefs.”

1 Timothy 6:10

“Few men have virtue enough to withstand the highest

bidder.” –George Washington

Bell Ringer

“So you think that money is the root of all evil?

Have you ever asked what is the root of money?”

–Ayn Rand

“The lack of money is the root of all evil.”

–Mark Twain

“Cash rules everything around me. C.R.E.A.M.,

get the money. Dollar dollar bill y’all.”

–Method Man

Objectives

1. Describe currency and bartering.

2. Analyze money and its different uses

throughout history.

3. Identify the six characteristics of money.

Currency

The coins and paper bills people use as

money are called currency.

In the past, people have used many things

as currency including cattle, salt, precious

stones, fur, and dried fish.

What else do people use as currency

today?

Barter

Without money, people acquire goods and

services through barter.

Many parts of the world still use bartering but as

an economy becomes more specialized, it

becomes too difficult to establish the relative

value of items to be bartered.

Money, therefore, makes exchanges much

easier.

The Six Characteristics of Money

The six characteristics of money are:

Durability

Portability

Divisibility

Uniformity

Limited supply

Acceptability

Durability and Portability

Durability

Money must be able to withstand the physical wear and tear

that comes with being used over and over again.

Portability

Money must be easily carried by people. Paper money and

coins work because they are small and light.

Divisibility and Uniformity

Divisibility Money must be easily divided into smaller denominations.

UniformityMoney must be made to look the same so people can count and

measure it accurately.

Limited Supply and Acceptability

Limited Supply

Money would lose its value if there was an unlimited

supply of it.

This leads to inflation… something we’ll be covering

soon.

Acceptability

Everyone in an economy must be willing to accept the

money and exchange it for goods and services.

Bell Ringer

From what source(s) does money get

its value?

A new Corvette sold in 1971 for $5,500.

A 2018 Corvette sells for $75,000. Why

is this?

Objectives

1. Learn how money came to be what

it is today.

2. Describe the three types of money.

3. Analyze the sources of money’s

value.

Commodity Money

Commodity money consists of objects that

have value in and of themselves that are also

used as money.

Why is commodity money impractical for use in

our modern society?

Representative Money

Representative money- currency that has value because it can be exchanged for something else of value.

Early representative money took the form of paper receipts for gold and silver.People left their gold in goldsmith’s safes and would carry

paper ownership receipts to show how much gold they owned.

Fiat Money

United States money today is fiat money,

which has value because a government has

decreed that it is an acceptable means to pay

debts.

Citizens have confidence that the money will be

accepted.

Because the Federal Reserve controls the supply, it

remains in limited supply, which makes it valuable.

https://www.youtube.com/watch?v=L04VLaZX1y8

What are the disadvantages of using fiat money instead of commodities or representative money?

The unlimited power of governments to “print” up money whenever they want.

Fiat currencies will always lose value over time.

Fiat money always has the potential to drop to zero value.

Fiat Money

What are the potential benefits of relying on fiat money?

It is easy to create and transport.

The money supply grows as the economy grows, which can make the economy more stable.

Money can be quickly created and issued in emergency situations, such as during war.

Fiat Money

What is something that you can

remember being a lot less expensive

when you were a kid?

1982

2014

Bell Ringer

What is inflation?

Inflation is a general upward

movement in prices.

It is caused when the money supply

(total amount of money in circulation)

exceeds the output of goods and

services in the economy

What causes inflation?

Inflation occurs as a result of federal

governments printing too much

money.

Who prints the money in the U.S.?The Federal Reserve (aka, The Fed)

The central bank of the United States

1946 to 1948 - 8% annually

1948 to 1970 - 2% annually

1969 to 1979 - Prices doubled

Currently (projected) – 2.2%

Recent History of Inflation

http://www.usinflationcalculator.com/inflation/current-inflation-rates/

Recent History of Inflation

Is there anything wrong with a slow and

steady rate of inflation?

No, especially when the inflation rate is

anticipated.

It can raise prices (which encourages

business growth) and boost wages (which

increases worker productivity).

Hyperinflation

Hyperinflation is “out of control” inflation,

with annual inflation rates usually between

100-500%.

Examples of Hyperinflation

In 1923, the German mark inflated from

2,000 to the dollar to 4.2 trillion to the

dollar.

Examples of Hyperinflation

In 2008, the yearly

inflation rate in

Zimbabwe reached

over 80 billion percent.

At one point, prices

were doubling twice a

day.

• How much do you know

about how banking works?

Scale of 1-5

• What services that banks

provide do you think you will

use within the next ten years?

Bell Ringer

Objectives

1. Identify how financial

institutions make

money.

2. Describe the different

types of financial

institutions.

Loans

Many banks loan money to other financial institutions and individuals.

Fractional reserve banking is the system where a bank only keeps a fraction of its funds on hand and lends out the rest.

Most banks choose to lend up to 90 percent of their assets.

“Expert” Textbook Activity

Groups of 4-5

Textbook Pages 269-271

“Expert” topics:

Commercial Banks

Savings and Loan Associations

Finance Companies

Credit Unions

Read through your “Expert” topic, then

report your findings back to your group

Types of Financial Institutions

Commercial Banks

Offer checking accounts, accept deposits, and make loans

Savings and Loan AssociationsAllow people to save up and borrow enough for their own homes

Finance CompaniesMake installment loans to consumers

Credit Unions

Cooperative lending associations established for particular groups

Pros/Cons of Credit Unions

Member owned

Not for-profit

Better interest rates

and lower fees

Federally-insured, just

like banks

Open only to members

of a certain group

Branch and ATM

locations are often

limited

Less access to large

loans

Closure

• Explain the function of

banks in an economy and the

process through which they

make a profit.

Key Terms

money supply: all the money available in the United

States economy

fractional reserve banking: a banking system that keeps

only a fraction of its funds on hand and lends out the

remainder

mortgage: a specific type of loan that is used to buy real

estate

interest: the price paid for the use of borrowed money

principal: the amount of money borrowed

Bell Ringer

List one service that a bank provides that

you think you will use within the next ten

years (checking account, loan, credit

card, etc.)

How will the bank make money by

providing that service?

What do you get in return?

Objectives

1. Define credit history and credit

score

2. Explain what factors

consumers should consider in

evaluating credit cards.

Loans

Financial institutions lend money to consumers and charge interest on those loans.

What is interest?

The cost of borrowing money

Interest is typically measured as an APR (Annual Percentage Rate).

In addition, interest charges can either be fixed or variable.

Credit Cards

How do credit cards work??

Credit cards entitle their owners to

buy goods and services based on

the owners promise to pay.

The amount you can borrow is tied

to your credit history and credit

score.

Credit Score

Your credit score is number that depicts a

your “creditworthiness” to potential lenders.

The higher the score, the more financially

trustworthy a person is considered to be.

Lowest: 300 Highest: 850

A credit score above 700 is considered good.

Payment History: On-time

payments or delinquencies

Amounts Owed: Percentage

of credit limits available

Length of Credit History:

How long you’ve maintained

credit responsibility

New Credit: Number of credit

inquiries and credit lines

opened in last 12-18 months

Types of Credit Used:

Installment vs. Revolving

Loans

Bell Ringer

What would you (legally) do if you

had to come up with $500 by the

end of the week?

Objectives

Define payday loans and the

services they provide

Identify the inherent dangers in short-

term credit advances

Generate alternative solutions to

when a desperate need for quick

income arises

Payday Loans

What do you know about “payday

loans”? How do they work?

Moneytree Lending Ad

What images or messages is the

Moneytree Lending ad trying to

convey?

Payday Loans

A payday loan is a type of short-term borrowing where

an individual borrows a small amount at a very high rate

of interest.

The borrower typically writes a post-dated personal

check in the amount they wish to borrow plus a fee in

exchange for cash.

The lender holds onto the check and cashes it on the

agreed upon date, usually the borrower's next payday.

Payday Loan Scenario

Imagine you desperately need $100.

You go to Moneytree, write a check for $118, and

they give you $100 cash.

In two weeks, they cash your check. Effectively, you have been charged 18 percent to use the $100 for

two weeks.

What if you don’t have the money? Moneytree will

hold the check another two weeks for an additional

18 percent. Every two weeks that you don’t have the money for them to cash your check, they charge you

an additional 18 percent interest.

Payday Loan Scenario

Work with an elbow partner to answer the

following questions:

Moneytree’s lending rate is 18 percent

every two weeks. There are 26 two-week

periods in a year. What total percent

would this be in a year?

A: 468 percent

Payday Loan Scenario

The formula for calculating simple

interest is A = P(1 + rt)A=Amount owed; P=Principle borrowed;

r=Interest rate (decimal); t=time (in years)

How much would you owe if you

couldn’t pay after one year?

A: $568

Payday Loan Facts

In the U.S., 12 million people borrow nearly $50 billion a year through payday loans.

Average amount borrowed: $375

Average amount owed: $800

Estimated average APR on payday loans: 385%

The rates charged on payday loans can be up to 35 timesthose charged on credit card loans and 80 times the rates charged on home mortgages.

Source: BusinessInsider.com

Possible Alternatives

Think back to the Bell Ringer…

What if you absolutely had to come up with $500 that you don’t have by the end of the week? What could you (legally) do?

Working with a partner, come up with 3-5 possible solutions to this problem.

Be ready to share your best answer with the class.

Possible Alternatives

Personal loan from bank/credit union

Payroll advance from employer

Borrow from friends/family

Sell/pawn personal goods

Sell blood/plasma

Ask for extension from current creditor

Government assistance program

Emergency assistance providers

Borrow against life insurance or retirement account

Closure - Three W’s

What (did you learn)?

So What (is the relevancy or

importance)?

Now What (will you do with this

information)?