Download Money and Banking

MONEY AND BANKING
What is Money?

Money- anything that people are willing to accept
in exchange for goods
Types of Money
 Coins- metallic forms of money
 Currency- Coins and paper money
What is money?
Why do we value and accept money?
 We are sure that others will accept its value
 It has value because we accept it has value
In America, money used to be “backed” by gold or
silver, but this went out in the 1930’s
Banking

Bank- an institution for receiving, keeping, and
lending money
Early Banking in the US
 Very informal
 A merchant would allow customers to deposit money
and charge a small fee; This was not always
safe… what if the merchant goes out of business or
is not trustworthy?
Financial Institutions

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Commercial Banks- financial institutions that offer
full banking services to individuals and businesses
Savings and Loan Associations- financial
institutions that traditionally loaned money to
people buying homes; they also take deposits and
issue saving accounts
Credit Unions- financial institutions that work on a
not-for-profit basis; open for members of a certain
group only
Safeguarding our Financial System

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The financial system of the US is one of the safest in
the world because of regulation and insurance
The FDIC or Federal Deposit Insurance
Corporation- the national corporation that insures
that individual accounts up to $250,000; was
created after the bank collapse of the 1930’s
(Great Depression)
The Federal Reserve System

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The Federal Reserve System- central bank of the
US; The Fed regulates the US monetary &
financial system; It is also the government’s bank
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
The Federal Reserve System
The Federal Reserve System
The Fed as a Regulator Regulates large commercial banks
 Regulates mergers of banks
 Enforces laws that deal with consumer borrowing
 Implement Monetary Policy

Ex. During times of recession and depression the Fed
decreases interest rates. (this encourages lending and
discourages savings)
The Federal Reserve System
The Fed as the Government’s Bank Holds the government’s money
 Sells US government bonds
 Controls coins and bills in circulation
 Control the amount of currency that is made and
destroyed on a daily basis
Government Finances
Part 1
Government Finances

Each year the President
and Congress work
together to create a
budget; the President
writes the budget and
then congress approves
the budget
Government Finances
Types of Spending
 Mandatory spending- spending
that does not need the annual
approval of Congress


Examples- Social Security benefit
checks and interest payments on
government debt
Discretionary spendinggovernment expenditures that
must be approved each year

Examples- Money spent on defense
and highway construction
Government Finances


Appropriations Bills- laws that approve spending
for a particular activity
Appropriations Bills always start in the House of
Representatives
Parts of the US Budget

Revenues- money taken in by the government
in by- income taxes (16th Amendment), payroll
taxes, excise taxes, estate taxes, & other fees
 Taken

Expenditures- money spent by the government
Types of Taxes

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Progressive tax- the higher one’s income the higher
the percentage of tax (income tax)
Regressive tax- tax imposed at a flat rate (sales
tax)
Excise- tax on manufacture, sale, and consumption of
goods; often called “hidden tax” (tax on fuel, alcohol,
tobacco)
Proportional tax- tax that takes the same
percentage of income regardless of how much is
earned
Local Government Finances
State and local government receive revenue from Sales tax
 State income taxes
 Property taxes
 Fines and fees
 Utilities
What are 3 expenditures at the local level?