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2.03 PowerPoint Objective 2.03 Explain how the Federal Reserve, Stock Market, and e-commerce impact the United States’ economic system. The Federal Reserve • Central Bank of the United States • Regulates the money supply in the US economy – Raises and lowers the discount interest rate – Puts money into circulation – Removes money from circulation The Discount Interest Rate • The discount interest is the interest rate charged to commercial banks and other depository institutions on loans. Impact of the Federal Reserve • If the Federal Reserve raises the discount rate – Consumer credit becomes more expensive – Consumers buy fewer large goods—refrigerators, boats, etc. • If the Federal reserve lowers the discount rate – Consumer credit becomes less expensive – Consumers buy more expensive goods—cars, washing machines, etc. What are stocks? • Stocks are shares of ownership in corporations • Shareholders have partial ownership in the corporation • Corporations are permitted to sell stock to raise capital for the corporation • Shareholders may receive dividend payments from the corporation What other investments are traded? • Bonds—loans made by the investor to the issuer; the investor is repaid with interest – – – – Corporate Bonds Municipal Bonds Treasury Bonds US Savings Bonds • Futures—agreement to buy or sell a commodity (oil, gold, etc.) at some point • Mutual Funds—combination of individual stocks • Stocks, Bonds, Futures, and Mutual Funds are called Securities. What other investments are traded? • Bonds: – Corporate Bonds are debt securities issued by private and public corporations. Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business. – Municipal Bonds are debt securities issued by states, cities, counties and other governmental entities to finance capital projects, such as building schools, highways or sewer systems, and to fund day-to-day obligations. – Treasury Bonds are issued by the US Treasury – US Savings Bonds are issued by the US Treasury The Stock Market’s Purpose • The stock market is where shares of stocks, bonds, and futures are bought and sold (or traded). (Can be electronic.) • The stock exchange is the actual physical location where stocks are listed and traded. – New York Stock Exchange (NYSE) – American Stock Exchange – NASDAQ—virtual exchange The Stock Market’s Functions • Provides companies with a way of issuing shares of stock to people who want to invest in the company. The sale of shares of stock is a way for the corporations to raise money. • Provides a place for the buying, selling and trading of stocks (and other securities). Impact of the Stock Market on the Economy • Bull Market – Stock prices going up or rising – Consumers are optimistic and buy stock hoping to earn more money – Consumers buy goods and businesses prosper • Bear Market – Stock prices are going down or falling – Consumers are pessimistic and reluctant to buy stock – Investors sell stock so they won’t lose more money – Consumers buy fewer goods and businesses may lose money. Some workers may lose jobs. Impact of E-commerce on the Economy • Because consumers can purchase goods on the Internet they have more choices in goods. • Global competition is increased and US businesses must compete globally. • Fewer salespeople are needed in stores—a shift in jobs is required. More people are needed in order fulfillment and customer service. • Goods are manufactured just-in-time—as they are needed for distribution.