# Visual One Grades examples Of CurrenCy and COin

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1 Visual One Examples of Currency and Coin

2 2 Tw o Ch e c k a n d Debit Card BIG BUCKS BANK NO. 338 PAY TO THE ORDER OF MEMO Uncle Sam One Thousand Dollars and no /00 \$, Ima Citizen Big Bucks Bank

3 3 Th r e e Reserve Requirements Deposit Dollars 0% Reserve Requirement Loan Dollars Depositor A Borrower A Depositor B Total Dollars

4 4 Fo u r How To Create Money Money Multiplier Formula: Money Multiplier = /divided by/ Reserve Requirement Examples: Reserve Requirement Money Multiplier 0% /divided by/.0 = 0 20% /divided by/.20 = 5 25% /divided by/.25 = 4 Potential Money Creation Formula: Potential Money Creation = Money Multiplier x Initial Deposit Examples: Deposit Reserve Requirement Money Multiplier Potential Money Creation \$,000 0% 0 \$000 20% 5 \$000 25% 4 0 x \$,000 or \$0,000 5 x \$,000 or \$5,000 4 x \$,000 or \$4,000

5 5 Fi v e Th e Fe d e r a l Re s e r v e Sy s t e m h a s Three Main Functions : Establish and implement monetary policy Regulate and Supervise banks Operate the nation s payments system

6 6 Six Money Mania Score Sheet Team Team 2

7 Activity One

8 Ac t i v i t y 2 Tw o Money Multiplier Scenario Sarah Saver goes to Investors National Bank and deposits \$,000 that she earned from her summer job. She now has a checking account with a balance of \$,000 from which she can write checks. What will Investors National Bank do with this newly deposited money? Well, if there is a 0 percent reserve requirement, the bankers will put \$00 in their vault and lend out the rest to people who need loans. Say Ernie Entrepreneur walks into Investors National wanting to borrow \$900 to start his new catering business. If the bankers decide that his project is worthwhile and he meets their criteria for a loan, they will give him the \$900. If Ernie puts the \$900 in his checking account, he can then write checks for that amount. There is now \$,900 of money available (\$,000 in Sarah s checking account and \$900 in Ernie s) to be spent. In other words, \$900 of new money has been created. If Ernie deposits a profit of \$500 from the grand opening of his business, the money supply grows some more. The process now continues when Vera Vacationer comes into Investors National to borrow for her trip to Hawaii. The bank lends out of Ernie s deposit, while putting in reserves and thus creates more money. If Vera deposits \$200 after her trip, the money supply again grows. Finally, Stan Student walks in to borrow for his college textbooks. The bank lends out of Vera s deposit and put in reserves, creating additional money once again. Our fractional reserve banking system leads to this multiplier effect on money.

9 Ac t i v i t y 2a Tw o Money Multiplier Scenario Answers Sarah Saver goes to Investors National Bank and deposits \$,000 that she earned from her summer job. She now has a checking account with a balance of \$,000 from which she can write checks. What will Investors National Bank do with this newly deposited money? Well, if there is a 0 percent reserve requirement, the bankers will put \$00 in their vault and lend out the rest to people who need loans. Say Ernie Entrepreneur walks into Investors National wanting to borrow \$900 to start his new catering business. If the bankers decide that his project is worthwhile and he meets their criteria for a loan, they will give him the \$900. If Ernie puts the \$900 in his checking account, he can then write checks for that amount. There is now \$,900 of money available (\$,000 in Sarah s checking account and \$900 in Ernie s) to be spent. In other words, \$900 of new money has been created. If Ernie deposits a profit of \$500 from the grand opening of his business, the money supply grows some more. The process now continues when Vera Vacationer comes into Investors National to borrow for her trip to Hawaii. The bank lends out \$450 of Ernie s deposit, while putting \$50 in reserves and thus creates more money. If Vera deposits \$250 after her trip, the money supply again grows. Finally, Stan Student walks in to borrow for his college textbooks. The bank lends out \$225 of Vera s deposit and puts \$25 in reserves, creating additional money once again. Our fractional reserve banking system leads to this multiplier effect on money.

10 Ac t i v i t y 3 Th r e e Name the legislative branch that established the Federal Reserve System and the year it was established. (Congress, 93) Money Mania Why was the Federal Reserve Bank established? (to counteract banking panics and to stabilize the money supply) How many regional Federal Reserve Bank offices are there? (2) Which Federal Reserve function has to do with controlling the money supply? (monetary policy) What are reserve requirements? (a percentage of deposits that banks are required to hold and not lend out) If the reserve requirement is 20%, and a \$000 deposit is made, how many dollars must the bank hold in required reserves? (\$200) What is a fractional reserve banking system? (a policy where banks are required to hold a specific fraction of their deposits available for withdrawal) What organization makes U.S. coins? (U.S. Mint) How do banks make money? (from interest that borrowers pay on loans) Which Federal Reserve function has to do with operating banks safely? (supervision and regulation) Why are reserve requirements necessary? (to keep deposit money available for withdrawal by customers) If the reserve requirement is 20%, and a \$000 deposit is made, what is the money multiplier? (5) What part of the money supply is considered M funds? (currency, coin and checking account balances) When customers take out bank loans, does the money supply in circulation increase or decrease? (increase) Why are banks willing to loan money to customers? (to receive interest on loan payments; to develop customer relationships) Which Federal Reserve function has to do with distributing currency and coin to banks? (payments system) If the reserve requirement is 20%, and a \$000 deposit is made, how many dollars of the deposit can banks lend out to customers? (\$800) What is the current reserve requirement for banks? (0%) What organization prints U.S. currency? (Bureau of Engraving and Printing) When customers pay back bank loans, does the money supply in circulation increase or decrease? (decrease) If the reserve requirement is 25%, and a \$000 deposit is made, how many dollars can banks lend out to customers? (\$750)

11 7 Se v e n Ex h i b i t Co r r e l at i o n t o FRB Fu n c t i o n s Monetary Policy Exhibits Monetary Policy Economic Stability Cost of Inflation FOMC Regional Reserves Bank Crisis Management Supervision and Regulation Exhibits Supervision and Regulation Changing Nature of the Financial System How Banks Build Wealth Banker to the Banks Why You Can Trust Your Bank Keeping The Money Moving Payment Exhibits Payments Counterfeits The Changing Ways People Pay Personal Financial Choices Currency Electronic Payments Cash Processing And The Vault Video Optional Exhibits: (Pick one to review) Bank Heritage Case Truman Coin Collection The Fed and You Media Wall

12 8 Ei g h t Economic and Personal Finance Concepts economic stability monetary policy financial services stock market discount rate supervision/regulation of banks federal funds rate credit Federal Open Market Committee direct-deposit borrowers automated clearinghouse payments cash processing financial institution Bureau of Engraving and Printing U.S. Mint counterfeit electronic payment services ATM card bank account Federal Reserve Note credit score interest rate credit history median earnings compound interest online banking debit card credit union automatic bill payments bank failures greenbacks fractional currency Treasury Dept. security features U.S. Government securities funding shortfall consumer loan collateral liquidity branch offices depository institutions banking laws loan application tax revenue creditworthy capital funds building wealth goods/services reserves Board of Governors recession profit inflation hyperinflation consumer Consumer Price Index consumption investment Gross Domestic Product net exports money supply M/M2 mutual funds bank examiners certificates of deposit

13 Ac t i v i t y 4 Fo u r Review and Reflect Name: FRB Specialty Area: Display Title: Write 3 interesting facts to summarize this display: List 2 economic or personal finance concepts covered in this display: Compose quiz question based on this display: Answer:

14 Ac t i v i t y 4a Fo u r Review and Reflect - Sheet Example Name: FRB Specialty Area: Monetary Policy Display Title: Trust and Confidence Write 3 interesting facts to summarize this display: - The FRB promotes financial stability and economic growth. - The twelve regional Federal reserve Banks, along with the Board of Governors in Washington, D.C., make up the Federal Reserve System. - The Federal Reserve System is the nation s Central Bank. List 2 economic or personal finance concepts covered in this display: - monetary policy - financial services Compose quiz question based on this display: What are the three missions or functions of the Federal Reserve Bank? Answer: (monetary policy, financial services/payments system, supervision and regulation of banks)

15 9 Ni n e Auction Results Classroom Money Supply Winning Bid Round One: Round Two: + _ Round Three: + _ Totals:

16 0 Te n Federal Reserve Bank Webbing Map Monetary Policy Board of Governors Tools of Monetary Policy Federal Open Market Committee Fe d e r a l Re s e r v e Sy s t e m Payments Systems 2 Regional Districts Across U.S. Supervision and Regulation 24 Branches Serve Districts

17 0a Te n Te a c h e r Ex p l a n a t i o n f o r Fe d e r a l Re s e r v e Bank Webbing Map The Federal Reserve System is the overall topic for this web, so it is written in the center oval. The Federal Reserve System has three main functions, each with its own oval: - Monetary Policy, which includes the actions that the Federal Reserve Bank takes in order to influence the money supply; - Supervision and Regulation of Banks, which is the ability to supervise and examine banks to make sure that they do business properly and safely; - Payments System, which is the ability to distribute cash, and process checks, credit and electronic payments. The Tools of Monetary Policy are the methods used to influence the growth of the money supply. This oval is connected to the Monetary Policy oval as well as the center oval. (The specific tools are open market operations, reserve requirements and the discount rate. These could be included in three ovals connected to the Tools oval, if space allowed.) The Board of Governors (along with selected Federal Reserve Bank presidents) set monetary policy through the Federal Open Market Committee or FOMC. These two ovals are connected to each other as well as to the center oval. The Federal Reserve System is made up of twelve district banks across the country. There are twenty-four branches of these banks throughout the various districts. These two ovals are connected to each other as well as the center oval.

18 El e v e n Monetary Policy Web Tries to keep employment high Tries to keep prices stable Tries to keep inflation in check Tries to keep interest rates moderate Mo n e t a r y Po l i c y GDP affects growth of the economy Decisions made by Board of Governors and 5 FRB Presidents Has 3 tools to regulate the economy Set by Federal Open Market Comittee

19 2 Tw e l v e Supervision /Regulation Web Sends FRB examiners to inspect banks Assigns bank ratings after inspections Develops rules that banks/credit unions follow Approves new bank owners Su p e r v i s i o n a n d Re g u l a t i o n Serves as a Central Bank to all members Lends money to banks if needed Asks banks to keep reserve requirements on hand Protects credit rights of consumers

20 3 Th i r t e e n Payments System Web Replaces worn and damaged currency Detects and removes counterfeit bills. Distributes currency and coin to banks ACH processes direct deposit of checks and auto payments Pa y m e n t s Sy s t e m BEP prints bills; Mint makes coins Electronic networks help settle payments throughout the U.S. Bills printed are Federal Reserve Notes from \$-\$00 Working to develop new electronic networks

21 Activity Five 0 5 5

PRE-VISIT LESSON Teacher Introduction: The Federal Reserve System is the Central Bank for our nation. It is composed of twelve regional Federal Reserve Banks and twenty-four Federal Reserve Bank branches.

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