Econ Test 6(Miss Parsons)

Peaks

real GDP reaches its highest point

Troughs

The point where GDP reaches the lowest point

Recession

When GDP is down for over 6 months

Expansion

when real GDP starts to rise,the period from the trough to the peak

Company

a business formed to manufacture or supply products or services for profit

Entrepreneur

a person who has a creative or unique vision for a product and services, and then creates and launches a business

Sole Proprietorship

A company owned and managed by 2 or more people who share its profits or losses

Partnership

a company owned and managed by two or more people who share its profits and losses

Private Corporation

when a proprietor, entrepreneur, or partners decide to incorporate. Means they establish a separate legal entity

Public Corporation

- larger companies who want to grow quickly do so by selling shares to the public to raise money
-The stack of a public company is owned and traded by individual and institutional investors

Stock Broker

the person who actually makes the trades for you

Sector

a group of companies that are engaged in similar business (Mcdonalds & Burger King)

Investor

a person who gives money to any of the above in return for a share of the company

The Stock Exchange and an IPO

-when a company goes to the stock market for the first time to raise money
-Money expands business

Risk

is the chance that conditions like exchange rates, government regulation, or political stability will affect an investment

3 functions of money

1. Medium-a means of doing something
2. Store of value
-we can hold money as a form of wealth until we find something we want to buy with it
3. Measure of value
-like a measuring stick that can be used to assign value to a good or to a service

Characteristics of money

Portable(easy to carry), Divisible(easy to divide into smaller amounts), Durable(must be well made), Limited supply(increased supply,counterfeiting)

Types of financial institutions

Commercial banks-offer full financial services to consumers and businesses
-accept deposits, provide checking accounts, make loans, etc.
-largest, most important part of financial system
Savings and loan association(S&L)
-s&l loaned money to people who were buying homes, now most S&L's offer many of the same services & commercial banks
-most of their customers now are individuals rather than businesses
Credit Union-a nonprofit cooperative that accepts deposits, make loans, and provide some financial systems
-often formed by people who work in the same industry, work for the same company, or belong to the same labor unions
-owned by the depositions, tend to charge lower interest rates or loans, lend money only to members

Credit Union

-a nonprofit cooperative that accepts deposits, make loans, and provide some financial systems
-often formed by people who work in the same industry, work for the same company, or belong to the same labor unions
-owned by the depositions, tend to charge lower interest rates or loans, lend money only to members

FDIC

- commercial banks
-Covers deposits of up to $250,000 for one person on all accounts within the same institution

Federal Reserve System

use the central bank- a banker's bank(can borrow money from it when times are difficult. Manages our currency, regulates commercial banks and serves as the govs bank & conducts certain policies to keep the economy healthy and strong

Monetary Policy

The manipulation or changing of the supply of money to stimulate economic growth and keep prices stable

3 tools of monetary policy

Open market operations(refers to the FOMCś actions to buy or sell gov bonds or treasury bills. Investors lend money to the gov by buying these bonds and bills) , Discount rate(Rate h interest fed charges institutions when they borrow money), Reserve requirements( The portion of a new deposit that a financial institution cannot lend out)

Fractional banking system

the practice whereby a bank accepts deposits, makes loans or investments, but is required to hold reserves equal to only a fraction of its deposit liabilities

What is a recession? How does fear play into recession? How does confidence play into recovery?

A recession is when the GDP goes down for 6 months or more, but most last less than a year. Unemployment goes up, income goes down, industries produce less, people save their $, banks don't loan, and increased interest rates. Fear plays into a recession because the economy is going down and the people don't know if there money is safe. Confidence plays into recovery by income going up, and employment increasing. People can start putting their money back into banks.

What does the government do to attempt to help the economy recover from a recession?

The government starts creating programs such as public works, tax cuts, and the lowering of interest rates to help recover from recession.

What makes recession unpredictable?

They can happen at anytime. You don't always know when someone may lose their job, or when the GDP may go down.

Why won't banks loan money as freely during a recession as they do when the economy is healthy?

Because the fear factor that plays into it. People don't have the money and they think that people will not be able to pay it back on time or at all do the lack of money. And when the economy is healthy they lend it out easily because they have confidence in the people's ability to pay it back and want to promote economic growth.

How do governmental programs such as public works, tax cuts, and the lowering of interest rates affect the national economy?

When government does these activities, the economy starts to go up because there is more money floating around in National society.

Why did the film claim that banks need to be empty in order to function properly?

answer please

What happens to your money when you deposit it in a bank?

Money you deposit money it is safe from loss because it is protected by a deposit insurance program.

What percentage of the money that is deposited in the bank is required to be reserved at the bank?

The percentage of money that the bank is required to reserve is 3%.

What is the "fractional banking system"?

The fractional banking system is when only a fraction of bank deposits are backed by actual cash, that is ready to deposit. When someone needs to deposit a larger deposit the bank takes from another parties capital. Practice whereby a bank accepts deposits makes loans and investments, but is required to hold reserves equal to only a fraction (approx. 3%) of its deposit liabilities.

What does it mean when they say that money is really all about trust?

There is less money in the world than what we think. There is 14.1 trillion dollars of money supposedly, but there is actually 1.2 trillion dollars that is tangible. We have the belief that there is money in our bank account however, it is actually being passed along.

What did the film say about the way money looks, and the way banks used to look? Why are these aesthetic details important?

According to the video, banks used to look like temple, carefully guarding everything. Now, they look more like "lounge rooms in airports". This difference is imperative because it proves that banks aren't what we might think in that not all of the money is stored at the bank.

What would happen if everyone decided to withdraw their money from the bank at the same time?

Banks do not keep a lot of money on hand, so if everyone came to collect their money, the banks would not have enough for everyone.

How do money and debt function as the same thing in the economy?

We believe there is more money in the economy than there really is. So when we put money in the bank or take money out of the bank, we are dealing with someone else's debt.

How do the banks benefit when debt is treated the same as money in the economy?

They have more money to lend out.

Where does cash money come from?

Cash money comes from the Federal Reserve. The physical money is printed and distributed to the banks, where they are supposed to loan out.

How does the Federal Reserve increase the amount of cash that is in circulation?

By giving money to the banks so the banks will lend it out and put it in circulation.

What do we want the banks to do with the cash they get from the Federal Reserve? What did they actually do with it?

We want them to make loans to people that cannot invest. The bank does whatever works for them, so they lend out the money.

How do loans, such as small business loans and mortgages, help the economy?

The government wants the bank to loan out money to individuals, which means that we are buying things. When we take out a loan, we are taking out more than we need making the bank charge interest. Then the bank starts making money.

How do the banks benefit from the way our economy currently works, based mostly on debt rather than cash?

Banks benefit from the way our economy works because people are acting like corporations and spending more than they need.

According to the film, what is one of the main causes of the economic crash of 2008?

one of the main causes of the economic crash of 2008 was that the banks were lending out money that was not there and the people who were in debt and suffering from lowering incomes cant pay it back at the time where they must fully pay back their loan.

What has increased more over the past 40 years - household income or household debt? Why is this the case? How has this impacted the economy as a whole? How has this impacted individual consumers? How has this impacted the banking system?

Productivity has increased. Household debt.

Why do the banks need us to over extend ourselves with credit cards and live beyond our means? How does this help our economy?

Banks need us to over extend ourselves with credit cards and live beyond our means because it puts people in debt and causes the people to pay the bank back which puts more money in the bank so the cycle can continue with someone else.

What does it mean when they say that "corporations are becoming people" and "people are becoming corporations"?

We, as people have changed in the way we are spending our money. We are acting more like banks.

Explain why the film claims that our economy is based on an illusion? Based on what you learned from these films, do you agree or disagree with this statement? Explain.

We, as people, believe the value is in the money, when really it's just something we trade. People also believe all of our cash in stored in banks in vaults.

List 5 ways that Wall Street affects everyday people.

-People go to invest in their future
-401k
-It affects economy in general
-Interest rates, beneficiary, pension plans
-Effects prices of goods and services purchased

List 5 ways that Wall Street affects the US economy.

-Affects the state of the economy
-Economy doesn't fully exist without it
-Provides capital for economy
- Provides money for all the business around the country
-Improves products

Identify and explain the 3 tools of monetary policy.

Improves products

What is the FDIC and how does it protect your deposit?

It is commercial banks that voer deposits of up to 250,000 for one person on all accounts w/in the same institution.

Identify and explain the 4 characteristics of money.

-portable
-easy to carry
-divisible
-easy to divide into smaller amounts

Durable

must be well made

Limited supply

increases value