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« 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.
Your Task
Groups/ Assigned TaxesProportional Progressive Regressive
KatieJaredShaillyAndrewMatt
ZachDanielleGiannaBrittanyJulie
JaimieOliviaJustinDemiCaitlin
Proportional Progressive Regressive KaylaAlexAlexaRobyn
BeckyKateJakeHeather
DaveAllanTomKellyCaitlin
Groups/ Assigned TaxesProportional Progressive Regressive
StephanieKristineEmilyBrooke
ChrisNick D. RyanMike
JeanetteMegMarieNick M.
Proportional Progressive RegressiveSteveJessErik Q.Sam Schlotterer
ZackSam StewartNatalie T.Becca
BrittanyZoeMatt
Groups/ Assigned TaxesProportional Progressive Regressive
BrandonDaveStefaniNoelle
BenMickeyMeganTheresa
WillEricAmandaJess
Proportional Progressive RegressiveBlakeCohenKristen
GregSergCarysScott
BryanTaylorMichelle
YOUR TURN TO TEACH!
From Deficit to DebtChapter 10, Section 4
Source: John Darkow, 2008
From Deficit to Debt
Source: O’Farrell, 2008
Deficit Spending
Deficit spending occurs when… Government spends more than is collected in revenues
Persistent deficits…
Contribute to the inflationary spiral
(What is inflation?)
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
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
Crowding-Out Effect
Impact on Investment Spending (“I” Sector of GDP)Corporations are “crowded-out” because government
spending forces investment spending to contract.
Individual ActionPeople will buy government bonds instead of
corporate bonds (SAFER)
Government ActionSells bonds (borrows $) to finance the deficit
ScenarioDeficit spending by the government
NUMBER YOUR PAPER FROM 1 - 5
Exit Ticket
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 researchb) Slow inflation and create a recessionc) Increase consumer spending and stimulate the
economy
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 inflationb) Deficits contribute to inflation c) Deficits stimulate the economy
5. Explain the “crowding-out” effect in your own words?
Warm-Up … Web Quest
Work within your groups to complete the web activity.
Everyone needs to complete one.
Time Limit: 3o minutes
Web Quest Groups1 2 3 4
5 6 7
Web Quest GroupsQuestion 1 Question 2 Question 3
Question 4 Question 5 Question 6
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)
Shifts in the AS Curvechanges in the cost of inputs
(any cost that would cause firms to offer more or less goods for sale at EVERY price)
Aggregate Supply Curve
Shows the quantity of real GDP (RGDP) that would be produced at various price levels.
Define Aggregate Supply {AS}
Total supply economy-wide
↑cost of inputsleftward shift
↓ cost of inputsrightward shift
Shifts in the AD CurveSpending v. Saving
(Any situation that would increase or decrease the amount of money consumers, businesses, government have to spend.)
Aggregate Demand Curve
Shows the quantity of RGDP purchased at each possible price level by 3 main sectors of spending (C, I, G)
Define Aggregate Demand {AD}
Sum of demand for ALL economic units in the economy
↑spendingrightward shift
↓ spendingleftward shift
Macroeconomic Equilibrium
Where AD and AS intersect
Both purchasers and producers are happy!
“BIG PICTURE” measures aggregate (total) spending and production economy-wide~!
When eGDPincreases, more jobs are being
created and the economy is GROWING
When ePLincreases,
general price levels are going up (INFLATION)
When eGDPdecreases, jobs are being lost
and the economy is SHRINKING
When ePLdecreases,
general price levels are going
down (DEFLATION)
When eGDPincreases, jobs
are being created and the
economy is GROWING
When ePLdecreases,
general price levels are going
down (DEFLATION)
Your Turn…
Please complete the graphing activity
Be sure to label ALL parts of the graph!
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.
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.
DEMAND AND SUPPLY-SIDE STABILIZATION
POLICIES
Fighting Inflation and Recession
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…
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 orinvestment 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
“Expansionary” Fiscal Policy
Used to fight unemployment…
↑Government Spending (“G”)
↓Taxes [indirectly affects “C”]
Problem:
↑AD will ↑GDP and ↑ PL…this causes inflation
Expansionary Fiscal Policy
“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
Contractionary Fiscal Policy
With demand-side fiscal policies, unemployment and inflation cannot be fought at the same time.
Limitation of Fiscal Policy
“Reaganomics”
Supply-Side Economics
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
How would supply-side policy work?
The Goal of Supply-Side Tax Cuts
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!)
Describe what you see…
Group Think
1. Form 4 groups
2. Each group will receive 1 item
3. Identify 2 functions of the item
What are the functions of money?Why do we need money?
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
Considering the functions of money,why has it been called so many names?
LootBooty
Cabbage
DoughBread
Moola
Characteristics of Money
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?
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
What is Liquidity?
The ease with which an asset can be converted into cash.
What is the most liquid asset?
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.
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?
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 ExchangeWill it be accepted by users?Does it meet the
characteristics of money?
Acceptable as a Medium of Exchange, and gold ore is limited
in supply
Unit of ValueCan it be used to establish
the value of many things?
Measurement isdetermined by size and
purity
Store of ValueCan it be stored easily?Does it retain value?
Durable – it will notfade or erode
The Need for Monetary Policy
Too much money in supply can cause inflation
Big Idea
Key word to understand:
Interest rate: A rate which is charged or paid for the use of money.
Responsible for making sure that the nation’s money supply grows at the appropriate rate
The Federal ReserveAmerica’s Central Bank
Why is this building significant? Who is this guy?
Photo Trivia
America’s Central Bank: ‘The Fed’
Established in 1914
Created to lend to other banks in times of need (controls money supply)
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
Map: 12 District Banks
Main Responsibility of the Fed
Controlling money supply!
Among others…
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 impactsInterest Rates: the cost of creditMoney Supply: the availability of credit
Two Types of Monetary Policy
‘Loose’ Monetary Policy
Used to stimulate the economy Action: ↑ MS and ↓ IR
Goal: ↑ eGDP and ↓ unemployment
Bottom Line,
Low interest rates encourage borrowing by consumers and businesses
Two Types of Monetary Policy
‘Tight’ Monetary Policy
Used to slow the economyAction: ↓ MS and ↑ IR
Bottom Line,
High interest rates slow economic growth because consumers and businesses borrow less
4 Tools of Monetary Policy
Federal Funds Rate
Discount Rate
Reserve Requirement
Open Market Operations
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.
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.
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
Summary ~ Tools of MP
Tool of MP Δ in MS Δ in IR
Open Market Operations
Buying Bonds ↑ MS ↓I.R.Selling Bonds ↓ MS ↑ I.R.
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.
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.
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
Current Event 3-2-1
3 THINGS YOU LEARNED
2 THINGS YOU WANT TO KNOW MORE ABOUT
1 THING THAT WORRIES YOU
F I N D A P A R T N E R
T O G E T H E R , S H A R E Y O U R R E S P O N S E S F O R T H E C U R R E N T E V E N T R E A D I N G
W O R K T O G E T H E R T O D E V E L O P A 3 S E N T E N C E D E S C R I P T I O N O F T H E A R T I C L E
A N D H O W I T I S R E L E V A N T T O E V E R Y D A Y L I F E A N D T H E M A T E R I A L
W E A R E L E A R N I N G I N T H I S C L A S S
B E P R E P A R E D T O S H A R E
Current EventPair - Share
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
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 _________
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!
The Unveiling of the new five dollarhttp://www.moneyfactory.gov/newmoney/flash/5Currency/unveil5new.html
Interactive five dollar bill http://www.moneyfactory.gov/newmoney/main.cfm/currency/interactiveNotes
New security features of the five dollar bill http://www.moneyfactory.gov/newmoney/main.cfm/currency/new5
Counterfeiting of moneyhttp://www.secretservice.gov/money_detect.shtml
MONEY AROUND
THE WORLD
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 globalizedeconomy…you need to stay informed!
Economic changes around the world impact you…
86
Admit Ticket
Tools of Monetary Policy Money Supply Interest Rates
Open Market Operations- 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?
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!
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
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.
