5/8 Warm-Up Pass up p. 267-268. 1.What makes stockholders responsible for only a portion of the debts of a corporation? 2.How do banks make money? 3.Give.

5/8 Warm-Up

Pass up p. 267-268.1. What makes stockholders responsible for

only a portion of the debts of a corporation?

2. How do banks make money?3. Give 3 characteristics of “good” money?

Bonus ?

The mechanics of US Airways seeking representation from which major union?

Federal Reserve p. 269

Federal Reserve System (Fed)

Our nation’s first central bank Created in 1913 by the Federal Reserve Act System is created of 12 regional Federal

Reserve Banks throughout the country. NC is part of the Richmond Federal Reserve District

Federal Reserve Board – supervises the banks, members appointed by the president

Main Tasks of the Fed

Supervise and Regulate Banks Implement Monetary Policy

Ex. During times of recession and depression the Fed decreases interest rates. (this encourages lending and discourages savings)

During times of inflation, the Fed increase interest rates. (this encourages savings and discourages lending)

Main Tasks of the FED

Control the amount of currency that is made and destroyed on a daily basis

Set required reserve ratio for demand deposits

Change the discount rate – interest that commercial banks pay the Federal Reserve

Federal Reserve Video

Answer questions to “Inside the Fed” on p. 265 (on right side of paper)

The Fed Today

The Fed Today

Keynesian Economics

Objective: to differentiate between expansionary and contractionary fiscal policy through class notes.p. 261

Keynesian Economics

A form of demand-side economics that encourages government action to increase and decrease demand and output

Demand-side economics- the idea that government spending and tax cuts help an economy by raising demand

John Maynard Keynes

Developed his theory after the Great Depression. His ultimate goal was to tell economists and politicians how to get out of and avoid economic crisis

Keynes believed that two things needed to happen to end the Great Depression

Consumers need to spend more money Keynes thought that

the spender should be the government. According to his theory, the government should buy goods and services. This would encourage production and increase employment

Businesses need to increase output

Keynesian Economics

According to Keynes, the government should stimulate demand through spending EVEN IF it resulted in a deficit.

As a result of this theory, people go back to work and then spend the money they make on goods and services- this increases production.

Fiscal Policy- the use of government spending to influence the economy

monetary flow

physical flow

monetary flow

physical flow

Circular Flow Diagram of a Mixed Economy

Households FirmsGovernment expendituresexpenditures

Fiscal policy can be used to fight two macroeconomic problems, according to Keynes.

Expansionary Policy Contractionary Policy

Fiscal Policy

Expansionary Policy

Recession (decline in economic prosperity) / Depression (Long recession) government should increase

spending OR Government should

decrease taxes

Contractionary Policy

Inflation (general increase in prices)Government should

decrease spending ORGovernment should

increase taxes

The US Economy on a Micro Scale

If you shrink down the US economy to a “household” level…

Income= $24,000Spending- $38,000Yearly Credit Card Debt= $14,000Balance on Credit Card= $164,000

Supply-Side Economics Supply-side

economics- a school of economics that believes that tax cuts can help an economy by raising supply

Those that agree with supply-side economics believe that taxes have strong negative influences on economic output

Trickle Down Economics Investing money in

companies and giving them tax breaks will benefit the economy. Eventually individuals (consumers) will experience the effects, thus, they trickle down to the households.

Opposition to Keynes Many economists disagree with Keynes, most

notably Friedrich August Hayek. Hayek said booms and busts were a regular

economic cycle and should NOT be regulated by the government.

Booms are a result of overspending (through credit) and the bust is the natural way the economy corrects itself.

Keynes v. Hayek rap Keynes v. Hayek rap pt. 2

THE FEDERAL RESERVE AND GOVERNMENT ECONOMIC POLICY,

p. 282

Monetary Policy: The Fed’s power over interest rates and the amount of $ in reserve

Fiscal Policy: The Gov’t’s (Congress - President) power over taxes, & spending

CONTRACTIONARY POLICY (TIGHT $$)

- USED DURING INFLATION!!! Increase interest rates Increase reserve requirements ($$

banks must have in reserve) Increase taxes Decrease gov’t spending

EXPANASIONARY POLICY (EASY or LOOSE $$)

USED DURING RECESSION /DEPRESSION decrease interest rate (easy to buy) decrease taxes decrease reserve requirements

(banks have more $$ to loan) increase government spending

Classwork/Homework

Finish Review Sheet Goal 8B, p. 273-274

STUDY for TEST Thursday

Reading Guide Quiz 22.1,22.2,23.1 pp. 259, 260, 266

1. What are the three main types of businesses? 2. Who owns a corporation? 3. What is limited liability? 4. What is a labor union? 5. What are right to work laws? Does NC have

them? 6. What is an injunction? 7. What are private goods? Give an example. 8. What are public goods? Give an example. 9. What are anti-trust laws? 10. What is a merger?

Warm-Up Questions (to be turned in)

Listen to the following story on NPR and answer the following questions (4 min.):

1.Where is this money located? 2. Describe the money. 3. Why did the society decide they needed the stones? 4. Analyze the money discussed using the 6

characteristics of money as a framework: Durability, Portability, Divisibility, Uniformity, Limited Supply and Acceptability. How does it compare to the dollar?

5. What was the main difference between the philosophies of Adam Smith and John Meynard Keynes?

**Did anyone check the stocks this morning?