2. Your Task
« You will be put into groups of 4 – 5
« Each group will be assigned one type of tax
« You will use your textbook and notes to complete
a poster that follows all of the assignment.
« You will then create a ‘poster’.
« This poster will be used to ‘teach’ the class
the information from your tax.
« Your poster should include the tax,
description, examples, pictures, and other
unique techniques that will make it easy and
exciting for your classmates to learn the
information.
9. Deficit Spending
Deficit spending occurs when…
Government spends more than is
collected in revenues
Persistent deficits…
Contribute to the inflationary spiral
(What is inflation?)
10. Why might deficit spending
occur?
Scenario 1:
Weak economy causes high unemployment
Outcome: Less revenue comes in from taxes
Scenario 2:
Increased spending on transfer payments
Outcome: Government is providing payment but
receiving neither goods nor services in
return
11. Consequences of
the National Debt
Scenario:
Government needs more revenue
Action:
↑ Taxes = ↓ Consumer Purchasing Power
Consequence:
The incentive to work is reduced if it means an
individual will have to pay more taxes
12. Crowding-Out Effect
Scenario
Deficit spending by the government
Government Action
Sells bonds (borrows $) to finance the deficit
Individual Action
People will buy government bonds instead of
corporate bonds (SAFER)
Impact on Investment Spending (“I” Sector of GDP)
Corporations are “crowded-out” because government
spending forces investment spending to contract.
14. 1. Some people believe we should have a 15%
tax rate on all personal income, regardless of
one’s level of total income.
What type of tax is this?
2. Which reason best explains why the federal
government might reduce taxes?
a) Finance defense research
b) Slow inflation and create a recession
c) Increase consumer spending and stimulate the
economy
15. 3. According to the “ability-to-pay” concept,
who should pay higher taxes?
4. Why should we be concerned about a
persistent deficit in the national budget?
a) Deficits reduce inflation
b) Deficits contribute to inflation
c) Deficits stimulate the economy
5. Explain the “crowding-out” effect in your
own words?
16. Warm-Up … Web Quest
Work within your groups to complete the web
activity.
Everyone needs to complete one.
Time Limit: 3o minutes
18. Web Quest Groups
Question 1 Question 2 Question 3
Question 4 Question 5 Question 6
19. Explain the concepts of aggregate supply
and aggregate demand, and how they are
used to determine macroeconomic
equilibrium
Aggregate = TOTAL
We are talking about “total” supply and
demand economy-wide … not just the supply
and demand for 1 product (i.e., Nintendo Wii)
20. Define Aggregate Supply {AS}
Total supply economy-wide
Aggregate Supply Curve
Shows the quantity of real GDP (RGDP) that would be
produced at various price levels.
Shifts in the AS Curve
changes in the cost of inputs
(any cost that would cause firms to offer more or less
goods for sale at EVERY price) ↓ cost of inputs
↑cost of inputs
leftward shift rightward shift
21. Define Aggregate Demand {AD}
Sum of demand for ALL economic units in the economy
Aggregate Demand Curve
Shows the quantity of RGDP purchased at each possible
price level by 3 main sectors of spending (C, I, G)
↑spending ↓ spending
Shifts in the AD Curve
rightward shift leftward shift
Spending v. Saving
(Any situation that would increase or decrease the amount of
money consumers, businesses, government have to spend.)
22. Macroeconomic Equilibrium
Where AD and AS intersect
Both purchasers and producers are happy!
“BIG PICTURE” measures aggregate (total)
spending and production economy-wide~!
23. When eGDP
increases, more
jobs are being
created and the
economy is
GROWING
When ePL
increases,
general price
levels are going
up (INFLATION)
24. When eGDP
decreases, jobs
are being lost
and the
economy is
SHRINKING
When ePL
decreases,
general price
levels are going
down
(DEFLATION)
25. When eGDP
increases, jobs
are being
created and the
economy is
GROWING
When ePL
decreases,
general price
levels are going
down
(DEFLATION)
26. Your Turn…
Please complete the graphing activity
Be sure to label ALL parts of the graph!
27. Create Your Own…
Something/Something
Please work with a group of 3-4.
Create a riddle, poem, or rap that explains
aggregate demand/aggregate supply and
their relationship with macro-economy
equilibrium.
You have 15 minutes to prepare.
Please be ready to present to the class.
28. Headliner Activity
Assume the role of a news reporter for the Wall
Street Journal (or another business news
publication).
Create a HEADLINE for a front-page story that
would reflect/apply concepts learned today.
Write a 4-6 sentence “report” about the scenario
described, and create an AS/AD curve illustrating
the shifts that would occur due to the situation.
Be sure to explain what would happen to productivity,
unemployment, and prices in the economy
BASED ON THE CHANGES IN eGDP and ePL.
30. Demand-Side Policies
Policies designed to ↑ or ↓ AD
(shift the AD curve)
Fiscal Policy: the government’s attempt to
stabilize the economy through taxing and
government spending
Derived from Keynesian economics…
31. Keynesian Economics
C + I + G + X-IM = GDP
Specifically focused on the idea that a change in
“C” or “I” would cause economic instability (↓ GDP)
If there is not enough consumer spending or
investment spending, the government can intervene
to ↑ AD
↓ taxes (stimulates “C”)
↑ government spending
This is occurring TODAY in our economy!
Recall Obama’s Economic Stimulus Plan
32. “Expansionary” Fiscal Policy
Used to fight unemployment…
↑ Government Spending (“G”)
↓ Taxes [indirectly affects “C”]
Problem:
↑ AD will ↑ GDP and ↑ PL
…this causes inflation
34. “Contractionary” Fiscal Policy
Used to fight inflation…
↓ Government spending (G)
↑ Taxes [indirectly affects “C”]
Problem:
↓ AD will ↓ PL (reduce inflation) and ↓ GDP
… this causes unemployment
38. Supply-Side Economics
“Best of Both Worlds”
↓ unemployment and ↓ inflation
Policies designed to stimulate output (rGDP) by
increasing production (AS curve shifts right)
↓ Taxes ⇒ ↑ AS
Result, ↑ GDP and ↓ PL
41. Limitations of
Supply-Side Policies
Difficult to predict how Supply-Side policy will
affect the economy
Polices would likely restore long-run economic
growth, not short-run instability (like today!)
44. Group Think
Form 4 groups
1.
Each group will receive 1 item
2.
Identify 2 functions of the item
3.
45. What are the functions of money?
Why do we need money?
46. Functions of Money
Medium of exchange: you don’t want money
for what it is…you want money because it buys
things!
Unit of Account: identifies the cost of something
In the U.S., prices are recorded in dollars and cents
Store of Value: it keeps its purchasing power
over time…though PP declines with inflation
47. Considering the functions of money,
why has it been called so many names?
Loot
Booty
Cabbage
Dough
Bread
Moola
49. What serves effectively as money?
Commodity Money: money that has an alternative
use as an economic good / commodity
Examples?
Fiat Money: money that has no alternative use as a
commodity
Examples?
50. M1 v. M2
M1 = money as a medium of exchange
● Money you “hold” and can walk into a store and use
right away
● Examples?
M2 = money as a store of value
M1 + money market deposit accounts, money
market mutual funds, and savings accounts
51. What is Liquidity?
The ease with which an asset can be converted into
cash.
What is the most liquid asset?
52. Fractional Reserve Banking
Banks are required to keep only a “fraction” of their
deposits in reserves.
10% reserve requirement today
Example
If you deposit $100 into your checking
account, $10 must be put in the vault…but the
other $90 is “excess reserves”.
This money is lent out to others who are seeking a
loan.
53. Auto Loan Web Quest:
How does monetary policy
affect my personal finance?
53
54. Exit Ticket
• Reflect on today’s activity
–What did you learn about the
impact of monetary policy on the
economy?
–What did you learn about the
impact of monetary policy on you
personally?
–What did you enjoy most?
54
55. Warm-Up: Invent “new” Money
Turn to the person seated next to you.
Together, you will “invent” new money, showing how
it fulfills the 3 functions in the same way gold does.
Function Gold as Money YOUR item as Money
Medium of Exchange Acceptable as a
Will it be accepted by users? Medium of Exchange,
Does it meet the and gold ore is limited
characteristics of money? in supply
Unit of Value Measurement is
Can it be used to establish determined by size and
the value of many things? purity
Store of Value
Durable – it will not
Can it be stored easily?
fade or erode
Does it retain value?
56. The Need for Monetary Policy
Too much money in supply
can cause inflation
57. Big Idea
Key word to understand:
Interest rate: A rate which is charged or paid
for the use of money.
58. The Federal Reserve
America’s Central Bank
Responsible for making sure
that the nation’s money supply
grows at the appropriate rate
59. Photo Trivia
Who is this guy?
Why is this building significant?
60. America’s Central Bank: ‘The Fed’
Established in 1914
Created to lend to other banks in times of need
(controls money supply)
61. Organization of the FED
Goal: to provide a safer, more flexible banking and
monetary system without interference of political
pressures.
Independent agency of the United States government
7 member Board of Directors in Washington D.C.
12 Districts Banks
65. Implementing Monetary Policy
Monetary Policy:
Expansion or contraction of the money supply to
influence the cost and availability of credit (loans).
The Fed uses four [4] major tools of MP to affect the
amount of excess reserves in the system
This impacts
Rates: the cost of credit
Interest
Money Supply: the availability of credit
66. Two Types of Monetary Policy
‘Loose’ Monetary Policy
Used to stimulate the economy
Action: ↑ MS and ↓ IR
↑ eGDP and ↓ unemployment
Goal:
Bottom Line,
Low interest rates encourage borrowing by
consumers and businesses
67. Two Types of Monetary Policy
‘Tight’ Monetary Policy
Used to slow the economy
Action: ↓ MS and ↑ IR
Bottom Line,
High interest rates slow economic growth because
consumers and businesses borrow less
68. 4 Tools of Monetary Policy
Federal Funds Rate
Discount Rate
Reserve Requirement
Open Market Operations
69. Fed Funds Rate (FFR)
Interest rate banks charge when they borrow from
each other
FFR is set by the Fed
↓ FFR
Banks will be more likely to take loans from other banks
Money from loan transactions goes into E.R.
Result,
↑ ER = ↑ Loans = ↑ MS = ↓ I.R.
70. Fed Funds Rate
↑ FFR
Banks are likely to pay loans back to other banks
Money used to pay back loans comes from E.R.
Result,
↓ ER = ↓ Loans = ↓ MS = ↑ I.R.
71. FFR and the Prime Rate
Prime Rate is the basis for many loans
including home equity loans, auto loans
and credit cards
The rates on these types of loans will change when
the Fed changes the FFR
↓ FFR = ↓ Prime Rate
● Result, Consumers
will borrow more
72. Summary ~ Tools of MP
Tool of MP Δ in MS Δ in IR
Open Market Operations
↑ MS ↓I.R.
Buying Bonds
↓ MS ↑ I.R.
Selling Bonds
Discount Rate
↑ the D.R. ↓ MS ↑ D.R.
↓ the D.R. ↑ MS ↓ D.R.
Reserve Requirements
↑ the R.R. ↓ MS ↑ R.R.
↓ the R.R. ↑ MS ↓ R.R.
Federal Funds Rate
↑ the F.F.R. ↓ MS ↑ I.R.
↓ the F.F.R. ↑ MS ↓I.R.
73. Summary ~ Tools of MP
Tool of MP Δ in MS Δ in IR
Open Market Operations
Buying Bonds
Selling Bonds
Discount Rate
↑ the D.R.
↓ the D.R.
Reserve Requirements
↑ the R.R.
↓ the R.R.
Federal Funds Rate
↑ the F.F.R.
↓ the F.F.R.
74. Monetarism
A doctrine of economic thought which places
primary importance on the role of money and its
growth
Monetarists believe that fluctuations in MS can lead
to inflation and unemployment
View: The problem of inflation and
unemployment would be helped by steady
growth in money supply
75. Current Event 3-2-1
3 THINGS YOU LEARNED
2 THINGS YOU WANT TO
KNOW MORE ABOUT
1 THING THAT
WORRIES YOU
76. Current Event
Pair - Share
FIND A PARTNER
TOGETHER, SHARE YOUR RESPONSES FOR
THE CURRENT EVENT READING
WORK TOGETHER TO DEVELOP A 3
SENTENCE DESCRIPTION OF THE ARTICLE
AND HOW IT IS RELEVANT TO
EVERYDAY LIFE AND THE MATERIAL
WE ARE LEARNING IN THIS CLASS
BE PREPARED TO SHARE
77. Video Analysis - The FED
As you watch the video, record the three primary
responsibilities of the FED that help maintain a strong
economy.
Briefly explain what each responsibility entails
Jot down ways you will remember how the tools of MP
affect money supply and interest rates in the economy,
based on this video
78. How much money would you have if you had
one of each of these bills and coins?
Lincoln Bill _________ Lincoln Coin _________
Jefferson Coin _________ Franklin Bill _________
Washington Bill _________ Kennedy Coin _________
Washington Coin _________ Grant Bill _________
Hamilton Bill _________ Roosevelt Coin _________
TOTAL _________
79. In an increasing globalized world and
integrated economy, it is essential that you
have an understanding of the U.S. currency
and money system in relation to other
counties.
As a result of Globalization, you must
understand the significance of foreign exchange
and currencies, and how the value of the U.S.
dollar compares to other countries and has
changed over time!
80. The Unveiling of the new five dollar
http://www.moneyfactory.gov/newmoney/flash/5Currency/unveil5new.html
Interactive five dollar bill
http://www.moneyfactory.gov/newmoney/main.cfm/currency/interactiveNot
es
New security features of the five dollar bill
http://www.moneyfactory.gov/newmoney/main.cfm/currency/new5
Counterfeiting of money
http://www.secretservice.gov/money_detect.shtml
85. 1. Your Thoughts…
• Did you like this activity?
• Did you learn anything new?
• Anything interesting?
• Is there anything you want to learn more
about?
We are living in an increasingly globalized
economy…you need to stay informed!
Economic changes around the world impact you…
86. Tools of Monetary Policy Money Supply Interest Rates
Admit Open Market Operations
Ticket - The Fed buys bonds
- The Fed sells bonds
Discount Rate
- ↑ the D.R.
- ↓ the D.R.
Reserve Requirements
- ↑ the R.R.
- ↓ the R.R.
Fed Funds Rate
- ↑ the F.F.R.
- ↓ the F.F.R.
1. When we want to stimulate the economy, which type of
monetary policy would be implemented?
2. What would this type of monetary policy do to money
supply and interest rates?
3. What is the result of this change in interest rates on the
borrowing habits of consumers and businesses? Why? 86
87. Monetary Policy Jubilee
Your assignment is to work with your
group members to create a poster that
captures the key features of the FED’s
tools of monetary policy. This will allow
you to look more deeply into how changes
in the tools of monetary policy impact
money supply and interest rates, and
ultimately the demand for credit (loans)
by people like you!
88. Your Poster Must…
Include illustrations and text that creatively highlight each of
the four [4] tools of monetary policy, and how
increases/decreases in the tools would affect money supply
and interest rates in the economy – 8 points (2 points / tool)
Include ILLUSTRATIONS of how changes in interest rates
affect the amount of loans people want
(HINT – what happens to the cost of borrowing when interest
rates change) – 4 points
Include a Portrayal of the beliefs of Monetarists in a way that
you will remember for the quiz and final exam – 2 points
Be in color – 2 points
89. You Must…
Work collaboratively with your group – 3 points
Use your time wisely; finishing within the time
limit – 3 points
Be creative – 3 points
Points will be deducted if you simply re-write your
notes on the poster board.
This assignment is asking you to synthesize what you
have learned and review it in a meaningful way that
will ultimately ensure success on the course
assessment.
