Banking Crisis – October 2008 Name ______________________ Date _______________Period ___ Savings...
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Transcript of Banking Crisis – October 2008 Name ______________________ Date _______________Period ___ Savings...
Banking Crisis – October 2008Name ______________________
Date _______________Period ___
Savings accts
Checking accts
Certificates of deposit
1% - 4% interest
Car Loans
Home Loans
Credit Cards
Corporate Loans
5% - 20% interestA. How Banks Work
1. Banks make a profit by charging a ____________ interest rate than they pay on deposits.
2. Banks may loan out 95% of the money they have deposited. If all of the people who deposited money in the bank went to collect it on the same day, the bank would ___________. We call this a “________ on the bank.”
B. Banks Rely on Each Other
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3. Banks typically make many overnight loans to each other ... money that is used to loan to ______________
4. “Commercial Paper” is a very ___________ term IOU from a corporation promising to repay a loan within 1 – 100 days; essentially it’s a corporate bond.
5. Money raised from commercial paper is used to buy capital, pay salaries, etc. List 3 capital items Southwest Airlines might buy: ___________________________________
6. A well-functioning financial system is considered _____________ to keeping an economy running.
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Patel Family – Nikil, Neha, Arvin & Leena
Mrs. Keith –
elementary teacherNeighbor Boy - Jake
High Schooler - Michelle
Lilia – Nail Tech
C. Circular Flow 6. What happens to visits to Peter Piper Pizza if Mr. Patel loses his job? __________________
7. What happens to Michelle?
____________________
8. How does Neha get her nails done?
____________________
9. So then does Lilia buy a ticket home for the holidays? _______
10. Which worker is probably the safest?
____________________
11. We call this the multiplier effect – when one person reduces her spending, she causes less income for the next person who must reduce his spending, causing less _____________ for the next person. In many ways, it’s advisable to keep _______________.
D. The US Government’s Bailout PlanUSA – our GDP (same as our annual income): $
13,807,000,000,000
our government’s 2007 receipts: 2,540,000,000,000
our government’s 2007 expenditures: 2,784,000,000,000
our government’s 2007 spending War in Iraq: 173,000,000,000
amount of proposed bailout of banks: 700,000,000,000http://www.bea.gov http://www.census.gov
Provisions of the Plan
(1) buy bad assets – mostly _______________ backed securities – from banks
(2) buy non-voting _____________ in banks.
Banking Crisis – October 2008Name ______________________
Date _______________Period ___
Savings accts
Checking accts
Certificates of deposit
1% - 4% interest
Car Loans
Home Loans
Credit Cards
Corporate Loans
5% - 20% interestA. How Banks Work
1. Banks make a profit by charging a __higher__ interest rate than they pay on deposits.
2. Banks may loan out 95% of the money they have deposited; if all of the people who deposited money in the bank went to collect it on the same day, the bank would _fail__. We call this a “_run_ on the bank.”
3. Banks typically make many overnight loans to each other ... money that is used to loan to _corporations__
4. Commercial Paper is a very _short_ term IOU from a corporation promising to repay a loan within 1 – 100 days; same thing as a bond - it’s a loan.
5. Money raised from commercial paper is used to buy capital, pay salaries, etc. List 3 capital items Southwest Airlines might buy: _new plane, new gate, luggage movers___
6. A well-functioning financial system is considered _essential_ to keeping an economy running.
B. Banks Rely on Each Other
$
$ $
$
com
mer
cial
pa
per
Patel Family – Nikil, Neha, Arvin & Leena
Mrs. Keith –
elementary teacher
Neighbor Boy - Brandon
High Schooler - Michelle
Lilia – Nail Tech
C. Circular Flow 6. What happens to visits to Peter Piper Pizza if Mr. Patel loses his job? _many less__
7. What happens to Michelle? _she__
_loses her job__
8. How does Neha get her nails done?
_herself__
9. So then does Lilia buy a ticket home for the holidays? _no__
10. Which worker is probably the safest?
__the teacher!___11. We call this the multiplier effect – when one person reduces her spending, she causes less income for the next person
who must reduce his spending, causing less _income_ for the next person. In many ways, it’s advisable to keep
__spending!_.
D. The US Government’s Bailout PlanUSA – our GDP (same as our annual income): $
13,807,000,000,000
our government’s 2007 receipts: 2,540,000,000,000
our government’s 2007 expenditures: 2,784,000,000,000
our government’s 2007 spending War in Iraq: 173,000,000,000
amount of proposed bailout of banks: 700,000,000,000
http://www.bea.gov
http://www.census.gov
Provisions of the Plan
(1) buy bad assets – mostly _mortgage-__ backed securities – from banks
(2) buy non-voting _stakes_ in banks.
Patel Family – Nikil, Neha, Arvin & Leena
Mrs. Keith –
elementary teacherNeighbor Boy - Brandon
High Schooler - Michelle
Lilia – Nail Tech
$ $
$$
$$
$$
commercial paper – short term debt instrument – like a bond – issued by a corporation or a bank to finance short term needs
com
mer
cial
pa
per
$
$