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Unit 3: Measuring Economic Performance Unit 3: Money, Banking, and Finance Goals – 9.01, 9.02, 9.04, 9.08, 10.02, 10,03, 10.05 Goals – 7.02, 7.03, 8.07, 8.08, 8.09, 9.07 Unit Essential Questions 1) What are the different phases of the business cycle? 2) How do economic indicators help to analyze the health of the economy? 3) What is money, and what is its purpose? 4) What is monetary policy, and the Federal Reserve? 5) Why is investing important? 6) What are some advantages and disadvantages of borrowing? UNIT PACING Day 1: Business Cycle, Inflation, & Unemployment (Economics Document) Review Business Cycle, Inflation, & Unemployment Business Cycle/Economic Indicators Chart Day 2: Economics Document – Money & Banking Review – The Function of Money & The Federal Reserve Day 3: Tools of the Federal Reserve The Federal Reserve System Day 4: Economics Document – Personal Finance, Consumerism Day 5: Test Review & Test – Units 4 & 5 Unit 3 – Measuring Economic Performance: NCSCOS – 9.01, 9.02, 9.04, 9.08, 10.02, 10.03, 10.05 Part 1 - GDP, Business Cycles, Inflation, Unemployment Chapter 23, Section (pgs. 638-644) Fill in the Phases of the Business Cycle o o o o o o Expansion Peak Contraction Trough Recession Depression Explain each of the Following Economic Indicators o o o o o o o o o GDP Real GDP Unemployment Rate Delayed Deliveries New Durable Good Orders Stock Market New Building Permits CPI – Inflation Stock Prices Explain the Following about the Stock Market o o o o o o Bull Market Bear Market Dow Jones Industrial Average (DJIA) Standard & Poor’s 500 (S&P 500) New York Stock Exchange (NYSE) NASDAQ Define the Following o Inflation (Cost Push, Demand Pull) o Fiscal Policy, Monetary Policy Business Cycle/ Economic Indicators Chart Objective: Analyze the effect of economic indicators on the business cycle. Assignment: Each student must draw the business cycle on a sheet of 8.5 x 11 piece of paper. Under each phase you must place which economic indicators belong in each phase. Assume that economists have made the following reports about these leading economic indicators. Where would these indicators be placed on the business cycle? Put the number of the statement where it should go on the business cycle Economic Indicators: 1) Stock prices show steady increases over the last six months. 2) Unemployment claims are up 5%. 3) Total inventories have slightly increased. 4) The # of building permits issued in the last six months have drastically increased. 5) Manufacturing labor hours show steady increases. 6) New plants & equipment have increased sharply. 7) Delayed deliveries have drastically reduced. 8) New durable good orders have declined slightly. 9) The number of new businesses formed has sharply increased. Unit 3 – Money, Banking, and Personal Finance NCSCOS 7.02, 7.03, 8.07, 8.08, 8.09, 9.07 PART 2 – MONEY AND BANKING Chapter 24, Section 1 (pgs. 657-659) Define the Following o Functions of Money Medium of Exchange Store of Value Measure of Value o Currency o Commercial Banks o Savings & Loans Associations (S&Ls) o Credit Unions o FDIC Chapter 24, Section 2 (pgs. 661-665) Explain the Following about the Federal Reserve o o o o o Federal Reserve System Monetary Policy Loose Monetary Policy Tight Monetary Policy Tools of the Fedral Reserve Discount Rate Reserve Requirement Open Market Operations Tools of the Federal Reserve The Federal Reserve uses (3) major tools to control the nation’s money supply. These tools are the reserve requirement, the discount rate, and open market operations. Describe how the Fed can use each of its tools to increase the money supply. 1) Changing the Reserve Requirement – 2) Changing the Discount Rate – 3) Open-Market Operations Imagine you are a member of the Federal Reserve Board and your staff gives you this report on the money supply and the economy. “The consumer Price Index continues to rise, the money supply has increased beyond target levels. Consumers fear a return of high inflation.” Underline the appropriate words in parentheses to show the policy you would follow. 1) The Fed should now follow a (tighter/looser) monetary policy with the desired effect of (increasing/decreasing) the money supply. 2) Possible actions to implement the policy are (raising/lowering) reserve requirements, (raising/lowering) the discount rate, or (selling/buying) treasury securities on the open-market. Now imagine that a year has passed and your staff gives you this report. “Business activity continues to sag, unemployment is rising, and the economy appears to be weakening. The money supply is growing at a much slower rate.” 1) The Fed should now follow a (tighter/looser) monetary policy with the desired effect of (increasing/decreasing) the money supply. 2) Possible actions to implement the policy are (raising/lowering) reserve requirements, (raising/lowering) the discount rate, or (selling/buying) treasury securities on the open-market. Federal Reserve Quiz 1) Who created the Federal Reserve? 2) Who appoints members to the Federal Reserve Board of Governors? 3) What is the purpose of the Federal Reserve? 4) What are the (3) tools of the Federal Reserve? 5) If the Fed increases the reserve requirement, what effect would it have on the money supply? (increase/decrease) 6) When would the Fed want to do this? (recession/inflation) 7) If the Fed sells securities on the open market, what effect would it have on the money supply? (increase/decrease) 8) When would the Fed want to do this? (recession/inflation) 9) If the Fed lowers the discount rate, what effect would it have on the money supply? (increase/decrease) 10) When would the Fed want to do this? (recession/inflation) PART 3 – PERSONAL FINANCE Chapter 20, Section 1 (pgs. 539-543) Define the Following o o o o o o o o Disposable Income Discretionary Income “Caveat Emptor” Consumerism The Food, Drug, and Cosmetic Act The Pure Food and Drug Act The Fair Packaging and Labeling Act Better Business Bureau Answer the Following o Explain the 5 rights in the Consumer Bill of Rights o Explain the 5 responsibilities consumers have? Chapter 20, Section 2 (pgs. 545-549) Define the Following o o o o o o o o o o o o o Budget Income Expenses Balanced Budget Budget Surplus Budget Deficit Credit Sources of Credit Interest APR Credit Rating Collateral Bankruptcy Chapter 20, Section 3 (pgs. 552-558) Define the Following o CD, Money Market Account, US Savings Bonds, o Investments o Stocks – Dividends, Bonds, Mutual Fund o Unit 3 - Measuring Economic Performance Unit 3 – Money, Banking, & Finance Directions: You will need to answer the following questions on a separate sheet of paper. This review will count for 10 extra credit points on the test. Business Cycle 1) Draw and label the phases of the business cycle. (see business cycle notes) 2) These economic indicators give economists the ability to predict the phase of the business cycle our economy is in currently, and where the economy is headed. Briefly describe each of the following. - manufacturing labor hours - building permits - unemployment claims - total inventories - new durable good orders - commodity prices - delayed deliveries - stock prices - # of new businesses formed - money supply - new plants & equipment - consumer confidence (see economic indicators worksheet) 3) The Government & the Business Cycle The government plays a role in the economy by trying to influence and solve certain problems. There are two basic problems that occur during the business cycle. One problem is inflation. Inflation is a general increase in the price level. Inflation results from too much money in circulation, meaning that people are spending money too quickly. The other problem is a recession. A recession results from people spending too much little money. The result is that business sales are down, and they begin to lay off workers. This means there is too little money in circulation. The government can influence the amount of money in circulation in two ways. One is through the Federal Reserve. The Federal Reserve is in charge of monetary policy. Monetary Policy is the Federal Reserve’s policy toward controlling the money supply. Tight monetary policy is used during a period of inflation. The Federal Reserve is trying to decrease the amount of money in circulation. Loose monetary policy is used during a period of recession. The Federal Reserve is trying to increase the amount of money in circulation. Explain how the Federal Reserve uses each of its tools to control the money supply. Economic Problems - 1) Inflation 2) Recession Fed Tools - 1) Reserve Requirement 2) Discount Rate 3) Government Securities 4) Personal Finance - consumer rights & responsibilities - borrower - budget - investor - functions of money - collateral - investments (stocks, bonds, CDs, mutual funds, savings accounts) - FDIC Test Format All Classes 30 multiple choice 10 Federal Reserve & Money Supply (tools, impact on money supply) 5 Economic Indicators (expansion or contraction) Honors Classes (Essay) Explain the following about the Federal Reserve. When was the Fed created, by whom, and what is its purpose? What is monetary policy, and explain the (2) types? What is the problem during a period on inflation & recession? What are the (3) tools of the Federal Reserve? How would the Fed use each of (3) tools to solve the problem of inflation and recession?