Download 2.03 Federal Reserve & Stock Market

2.03 Federal Reserve &
Stock Market
Objective 2.03 Explain how the Federal
Reserve, Stock Market, and e-commerce
impact the United States’ economic system.
The Federal Reserve
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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
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Impact of the Federal Reserve
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If the Federal Reserve raises the discount
rate
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Consumer credit becomes more expensive
Consumers buy fewer large goods—
refrigerators, boats, etc.
If the Federal reserve lowers the discount
rate
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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
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What other investments are traded?
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Bonds—loans made by the investor to the
issuer; the investor is repaid with interest
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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.
The Stock Market’s Purpose
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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.
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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).
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Stocks help . . .
Stocks are . . .
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Stock is ownership in a
company. (Equity)
If you were to divide your
business up into small
pieces and sell those
pieces, you would
essentially have issued
stock.
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you raise money from
selling those "pieces" of
your business which can
be used to build new
plants and facilities, pay
down debt, or acquire
another company.
smart owner will keep at
least 51% of the stock,
which will allow them to
retain control of the day
to day activities
controlling shareholder
What is the Dow Jones
Industrial Average?
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An index of thirty, blue chip
stocks that are traded in the
United States.
It is believed that by looking
at the companies on the list,
a person can get a general
picture of how the market as
a whole is performing.
The most quoted and
followed index in the world,
and dates back to May 26,
1896.
Bear Market
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A prolonged period in
which investment prices
fall, accompanied by
widespread pessimism
Bear markets usually
occur when the
economy is in a
recession and
unemployment is high,
or when inflation is
rising quickly
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1929 Crash most
famous crash in U.S.
history
Dow Industrials hit a
high of 386 in
September, 1929.
It did not get back to
that level until
November, 1954
Dow dropped 89%
1987 – The Market fell
dramatically.
Bull Market
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long term uptrend
(months to years) price
movement in any
market
An extended period of
generally rising prices
characterized
by optimism, investor
confidence and
expectations that strong
results will continue.
Impact of E-commerce
on the Economy
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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.