Chapter 20 – Money, Financial Institutions, and the Federal Reserve
20-1
Money, Financial In-
stitutions, and the
Federal Reserve
chapter
=
what’s new in this edition 20.3
brief chapter outline and learning goals 20.3
lecture outline and lecture notes 20.6
PowerPoint slide notes 20.51
lecture links 20.65
lecture link 20-1: FIXED ASSETS, OR WHY A LOAN IN YAP IS HARD TO 20.66
ROLL OVER
lecture link 20-2: THE FATE OF THE PENNY 20.67
lecture link 20-3: EURO PORTRAITS 20.67
lecture link 20-4: DIRTY MONEY 20.67
lecture link 20-5: CURRENCY FOR CONSUMERS WITH VISUAL 20.68
IMPAIRMENTS?
lecture link 20-6: MONEY FACTS 20.68
lecture link 20-7: WRENCHING INFLATION OUT OF THE ECONOMY 20.69
lecture link 20-8: GOLDSMITH BANKING 20.70
20
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
20-2
lecture link 20-9: RESPONSIBLE BANKING WITH CDFIS 20.71
lecture link 20–10: CONTROVERSIAL CREDIT UNION LOANS 20.71
lecture link 20-11: THE FUTURE OF TRANSFERRING MONEY 20.72
critical thinking exercises 20.73
critical thinking exercise 20-1: BARTERING: BUYING A PAIR OF JEANS 20.73
critical thinking exercise 20-2: TEST YOUR KNOWLEDGE OF MONEY 20.74
critical thinking exercise 20-3: CURRENCY TRADING 20.79
critical thinking exercise 20-4: RESEARCHING THE FEDERAL RESERVE’S 20.80
TOOLS
bonus cases 20.81
bonus case 20-1: KEEPING AHEAD OF COUNTERFEITERS 20.81
bonus case 20-2: BERNANKE’S BIG GAMBLE 20.83
bonus case 20-3: WHEN MONEY LOSES ITS MEANING 20.84
bonus case 20-4: REFORMING WALL STREET 20.86
what’s new in
this edition
additions to the 10th edition:
• Name That Company: Mango
• Discussion of Bitcoin added to subsection What Is Money?
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
20-3
deletions from the 9th edition:
• Name That Company: Credit Unions
• Spotlight on Small Business
• Reaching Beyond Our Borders
brief chapter outline
and learning goals
c h a p t e r 20
Money, Financial Institutions,
and the Federal Reserve
Getting To Know BEN S. BERNANKE, CHAIRMAN of the FEDERAL
RESERVE
learning goal 1
Explain what money is and what makes money useful.
I. WHY MONEY IS IMPORTANT
learning goal 2
Describe how the Federal Reserve controls the money supply.
B. What Is the Money Supply?
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
20-4
D. The Discount Rate
E. The Federal Reserve’s Check-Clearing Role
learning goal 3
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
20-5
learning goal 6
Describe how technology helps make banking more efficient.
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
Getting to Know BEN S. BERNANKE, Chairman of the
evolved to manage money and to make it availa-
free as the flow FROM STATE TO STATE.
This banklike store in Austin, Texas, was designed to serve low-income clients who
don’t have traditional bank accounts. Customers pay a one-time $10 fee that allows
them to cash checks and put the money onto debit cards. Name that company.
(Students should read the chapter before guessing the company’s name: Mango)
PPT 20-1
Chapter Title
PPT 20-2
Learning Goals
(See complete PowerPoint slide notes on page 20.51.)
PPT 20-3
Learning Goals
(See complete PowerPoint slide notes on page 20.51.)
PPT 20-4
Ben Bernanke
(See complete PowerPoint slide notes on page 20.52.)
PPT 20-5
Name That Company
(See complete PowerPoint slide notes on page 20.52.)
lecture link 20-1
FIXED ASSETS, OR WHY A
LOAN IN YAP IS HARD TO ROLL
OVER
The traditional money supply in the Yap Islands consists of
enormous stone wheels. (See the complete lecture link on page
20.65 in this manual.)
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
5. What happens to any major country’s economy has
an effect on the U.S. economy, and vice versa.
B. WHAT IS MONEY?
1. MONEY is anything that people generally accept
as payment for goods and services.
2. BARTER is the direct trading of goods and ser-
vices for other goods and services.
bartering online.
b. Others today still barter goods and services,
market than goods.
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
PPT 20-6
What’s Money?
(See complete PowerPoint slide notes on page 20.52.)
critical thinking
exercise 20-1
BARTERING: BUYING A
PAIR OF JEANS
This exercise explores how bartering would work using the
example of a pair of jeans (See complete exercise on page
20.73 of this manual.)
PPT 20-7
Standards for a Useful Form of
Money
(See complete PowerPoint slide notes on page 20.53.)
lecture link 20-2
THE FATE OF THE PENNY
The lowly penny can buy very little. Should the coin be
phased out? (See the complete lecture link on page 20.66 in
this manual.)
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
20–10
e. UNIQUENESS:
i. The government has had to go to extra
5. ELECTRONIC CASH (E-CASH) is the latest
form of money.
services such as PayPal.
learning goal 2
Describe how the Federal Reserve controls the money supply.
C. WHAT IS THE MONEY SUPPLY?
1. Control of the money supply involves two ques-
tions:
a. What is the money supply?
b. Why does it need to be controlled?
2. The MONEY SUPPLY is the amount of money
the Federal Reserve Bank makes available for
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
lecture link 20-3
EURO PORTRAITS
Ten years after the introduction of the euro, the European
Union is honoring the original 10 adopters. (See the complete
lecture link on page 20.67 in this manual.)
lecture link 20-4
DIRTY MONEY
“Dirty money” usually means money tainted by corruption,
but in the Republic of the Congo, it could be literally true.
(See the complete lecture link on page 20.67 of this manual.)
lecture link 20-5
CURRENCY FOR CONSUMERS
WITH VISUAL IMPAIRMENTS
The United States is one of the few nations that have taken
no actions to make denominations of paper money legible to
individuals who are blind. (See complete lecture link on page
20.68 of this manual.)
PPT 20-8
The Money Supply
(See complete PowerPoint slide notes on page 20.53.)
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
20–12
3. There are several CLASSIFICATIONS OF THE
MONEY SUPPLY (M–1, M-2, and so on).
a. M-1 is money that can be accessed quickly
and easily (coins and paper bills, checks,
traveler’s checks, etc.).
would go down: DEFLATION.
E. THE GLOBAL EXCHANGE OF MONEY
1. FALLING DOLLAR means that the amount of
2. RISING DOLLAR means that the amount of
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
lecture link 20-6
MONEY FACTS
Why do some coins have grooved edges? How much gold
is in Fort Knox? (See the complete lecture link on page 20.68
of this manual.)
critical thinking
exercise 20-2
TEST YOUR KNOWLEDGE OF
MONEY
This exercise is a brief test of the student’s knowledge of
money. (See complete exercise on page 20.74 of this manual.)
PPT 20-9
New Money
(See complete PowerPoint slide notes on page 20.53.)
PPT 20–10
How Long Does Paper Money
Last?
(See complete PowerPoint slide notes on page 20.54.)
PPT 20-11
Money Milestones
(See complete PowerPoint slide notes on page 20.54.)
PPT 20-12
Money Facts
(See complete PowerPoint slide notes on page 20.55.)
PPT 20-13
Exchanging Money Globally
(See complete PowerPoint slide notes on page 20.55.)
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
cost of cars from Germany.
4. What makes the dollar weak or strong is the
POSITION OF THE U.S. ECONOMY relative to
a. In a STRONG ECONOMY, the demand for
dollars is high and the value of the dollar
1. The Federal Reserve System consists of five
major parts:
and supervises the 12 Federal Reserve
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
critical thinking
exercise 20-3
CURRENCY TRADING
This exercise asks the student to research currency values
and calculate several currency conversions. (See complete ex-
ercise on page 20.79 of this manual.)
PPT 20-14
The Impact of a Falling Dollar
(See complete PowerPoint slide notes on page 20.55.)
bonus case 20-1
KEEPING AHEAD OF
COUNTERFEITERS
This case involves the U.S. Treasury’s continuous battle to
keep ahead of counterfeiters. (See the complete case, discus-
sion questions, and suggested answers beginning on page
20.81 of this manual.)
PPT 20-15
Five Major Parts of the Federal
Reserve System
(See complete PowerPoint slide notes on page 20.56.)
PPT 20-16
The 12 Federal Reserve District
Banks
TEXT FIGURE 20.1
The Federal Reserve District Banks
(Text page 558)
(See complete PowerPoint slide notes on page 20.56.)
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
2. The FEDERAL RESERVE:
a. Buys and sells foreign currencies
b. Regulates various types of credit
count rate.
C. THE RESERVE REQUIREMENT
1. The RESERVE REQUIREMENT is a percent-
age of commercial bank’s checking and sav-
ings accounts that must be physically kept in
Federal Reserve district bank.
REQUIREMENT:
a. Banks have LESS MONEY FOR LOANS
and make fewer loans, which reduces in-
flation.
b. The money supply would be REDUCED
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
TEXT FIGURE 20.2
How the Federal Reserve Controls
the Money Supply
(Text page 558)
This text figure shows how the Federal Reserve System us-
es its four tools to control the money supply.
critical thinking
exercise 20-4
RESEARCHING THE FEDERAL
RESERVE’S TOOLS
This exercise asks the student to go online and obtain up-
to-date information about the Fed’s money supply manage-
ment tools. (See complete exercise on page 20.80 of this man-
ual.)
lecture link 20-7
WRENCHING INFLATION OUT
OF THE ECONOMY
The U.S. inflation rate in 1979 was almost 15%. Then Fed-
eral Reserve chair Paul Volcker was appointed in 1980 with a
mandate to bring inflation under control. (See the complete
lecture link on page 20.69 in this manual.)
bonus case 20-2
BERNANKE’S BIG GAMBLE
The U.S. economy is slowly expanding and Ben Bernanke
has announced his intention to invest $600 billion in Fed mon-
ey. (See the complete case, discussion questions, and suggest-
ed answers beginning on page 20.83 of this manual.)
PPT 20-17
Managing the Money Supply
(See complete PowerPoint slide notes on page 20.56.)
Chapter 20 – Money, Financial Institutions, and the Federal Reserve
5. LOWERING THE DISCOUNT RATE encour-
ages bank borrowing and increases the amount
CREASE IN THE MONEY SUPPLY.
6. The Fed also sets the FEDERAL FUNDS
ROLE
3. This process is costly, so banks try to LESSEN
THE USE OF CHECKS through use of credit
money.
b. Colonists were forced to barter for goods.