CASE STUDY

Content Standards:

Standard 10:Students will understand that:Institutions evolve in market economies to help individuals and groups accomplish their goals. Banks, labor unions, corporations, legal systems, and not-for-profit organizations are examples of important institutions . . . .

Benchmarks:

grade 8:

• Banks and other financial institutions channel funds from savers to borrowers and investors.

Standard 11:Students will understand that:Money makes it easier to trade, borrow, save, invest, and compare the value of goods and services.

Benchmarks:

grade 12:

• The basic money supply of the United States consists of currency, coins, and checking account deposits.
• In many economies, when banks make loans, the money supply increases; when loans are paid off, the money supply decreases.

Standard 12:Students will understand that:Interest rates, adjusted for inflation, rise and fall to balance the amount saved with the amount borrowed, thus affecting the allocation of scarce resources between present and future uses.

Benchmarks:

grade 12:

• An interest rate is the price of money that is borrowed or saved.
• Like other prices, interest rates are determined by the forces of supply and demand.
• The real interest rate is the nominal or current market interest rate minus the expected rate of inflation.
• Higher real interest rates provide incentives for people to save more and to borrow less.Lower real interest rates provide incentives for people to save less and to borrow more.
• Real interest rates are positive because people must be compensated for deferring the use of resources from the present into the future.
• Riskier loans command higher interest rates than safer loans because of the greater chance of default on the repayment of risky loans.

Standard 15:Students will understand that:Investment in factories, machinery, new technology, and the health, education, and training of people can raise future standards of living.

Benchmarks

grade 12:

• Investment in physical and human capital can increase productivity, but such investments entail opportunity costs and economic risks.
• Investing in new physical or human capital involves a trade-off of lower current consumption in anticipation of greater future production and consumption.
• Higher interest rates discourage investment.

Standard 20:Students will understand that:Federal government budgetary policy and the Federal Reserve System's monetary policy influence the overall levels of employment, output, and prices.

Benchmarks:

grade 12:

• Monetary policies are decisions by the Federal Reserve System that lead to changes in the supply of money and the availability of credit.Changes in the money supply can influence overall levels of spending, employment, and prices in the economy by inducing changes in interest rates charged for credit and by affecting the levels of personal and business investment spending.
• The major monetary policy tool that the Federal Reserve System uses is open market purchases or sales of [U.S.] government securities.Other policy tools used by the Federal Reserve System include increasing or decreasing the discount rate charged on loans it makes to commercial banks and raising or lowering reserve requirements for commercial banks.

Session Objectives:

• Identify the differences between commodity-backed money and fiat money.
• Discuss different methods of valuing currency - government set value; pegging to other currencies; floating exchange rate - and how economic changes, trade policies, and central banks can affect the value of currencies.
• Explain currency exchange rates and currency speculation.
• Briefly review the history and development of fractional reserve banking.
• Define the money supply and relate changes in the money supply to commercial banking. Explain how the composition of the money supply responds to market forces.
• Define and demonstrate the money multiplier.
• Define interest.Review the operation of supply, demand, and price in product markets, and develop the example of interest as the price in capital markets.
• Discuss the relationship between interest rates and investment, and relate to the business cycle model.
• Add interest and investment to the previously developed circular flow model.
• Discuss how deficit spending and other fiscal policies may impact interest rates, investment, and national economic goals (growth, stability, security, equity).
• Present and explain the Quantity Theory of Money.

EXPLAIN YOUR ANSWERS

question nine

1.Value rulings inspiration economic___________- conclusion making and policy for the reason that value judgements___________

2.Which one of the NEXT is a central purpose _____________of economic activity? The construction of goods to____________

3.The main methodological difference between Economics and the natural sciences is that economists

4.A positive statement ____________--can be fully be describe as___________

5.A normative___________ statement can be given with which formular as _____________

6.Which example can be described as a positive statement?

7.'Rising unemployment is a price worth paying to get inflation down_______________

8.The basic economic problem leads to which one of the following key economic decisions that any economy must address?

9.Economic decision-makers are principally disturbed with______________

10.When making commercial decisions the administration is least likely to take account of