THRIFT INSTITUTIONS
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SAVING AND LOAN ASSOCIATION (S&L)
: Also known as a Thrift, is afinancial
institution that specializes in accepting savings deposits and making mortgage loans, they
were famously portrayed in the 1946 film It's a Wonderful Life.
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MUTUAL SAVING BANKS
: Most mutual savings banks are located in the Northeast, andare owned by their depositors and borrowers. A mutual savings bank does not issue capital
stock. Profits are distributed to the owner/customers in proportion to the business they do
with the institution.
3-
CREDIT UNIONS
: Unions, Universities & Professional Organizations create them.Usually, only accept accounts and lend money from/to members of the group . A credit
union is a cooperativefinancial institution that is privately owned and controlled by its
members. They elect their board of directors in a democratic one person-one vote system
regardless of the amount of money invested in the credit union. Credit Unions typically pay
higher dividend (interest) rates on shares (deposits) and charge lower interest on loans than
banks.
THE FEDERAL RESERVE SYSTEM -STRUCTURE
-THE MONETARY POLICY (MONEY SUPPLY & INTEREST RATE)
THE VALUE OF MONEY 1-INFLATION 2-DEFLATION SEE:
1-THE CONSUMER PRICE INDEX (CPI) OR “THE COST OF LIVING”. 2-THE PURCHASING POWER.
CAUSES OF INFLATION:
1-DEMAND-PULL (WHEN THE DEMAND IS HIGHER THAN THE CAPACITY TO PRODUCE THE GOODS).
2-COST-PUSH (PRICES RAISE AS A RESULT OF AN INCREASE IN COSTS OF PRODUCTION: WAGE INCREASES WITHOUT MORE PRODUCTIVITY).
FIGHTING INFLATION:
CONTROL THE GROWTH OF BUSINESS AND THE CONSUMER PURCHASING POWER (MONETARY AND FISCAL POLICES). THE NEGATIVE RESULT IS UNEMPLOYMENT (
THE
PHILLIPS CURVE
).LIMIT WAGES AND PRICE INCREASES (INCOME POLICES):
1-VOLUNTARY CONTROL: CORPORATIONS / WORKERS LIMIT VOLUNTARILY THEIR DEMANDS.
2-LIMITING MONOPOLY POWER: GOVERNMENT REDUCE THE MARKET POWER OF LABOR AND MANAGEMENT TO FIX THE PRICES.
3-DIRECT CONTROL: DURING WAR OR EMERGENCIES THE GOVERNMENT HAVE ESTABLISHED “CEILING PRICES” (TOP / MAXIMUM PRICES) AND “FLOOR PRICES” (MINIMUM PRICES).
-ECONOMIC PERFORMANCE.
Objectives
1-Analyze per capita GNP or GDP as a measure of standard of living (I A). 2-Relate employment and unemployment statistics to the state of the economy (II B).
3-Describe the basic national economic goals and explain how the government and citizens can influence them (III A).
4-Identify ways to expand the participation of Americans in establishing national economic goals, especially minorities and women (III A).
5-Discuss how leading, coincident, and lagging indicators are used to forecast economic activity (III B). VOCABULARY
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GDP
: THE TOTAL MARKET VALUE OF ALL THE GOODS AND SERVICES PRODUCED BY THE ECONOMY OF A NATION IN A SINGLE YEAR. Developed by Simon Kuznets in 1934 to study effects of Great Depression (Won Nobel Prize in 1971). Includes value of goods and services generated by G+C+B, except: Barter, Housewife's work and illegal activities. It has grown 20 times during last 100 years. See Nominal (Not Adjusted for Inflation) vs. Real (Inflation) vs. Potential (Full Employment) GNP. 2-CAPITAL CONSUMPTION ALLOWANCE
: FUNDS SET ASIDE TO REPLACE MACHINERY, TOOLS, BUILDINGS.3-
NATIONAL INCOME
: ALL THE INCOMES EARNED BY INDIVIDUALS AND BUSINESSES IN THE PRODUCTION OF THE GNP.4-
PERSONAL INCOME
: THE PART OF THE NATIONAL INCOME THAT IS DISTRIBUTED TO FAMILIES AND INDIVIDUALS (COMPENSATION TO EMPLOYEES). IT ALSO INCLUDES THE GOVERNMENT BENEFITS, WELFARE, AND PENSIONS (TRANSFER OF MONEY).5-
DISPOSABLE PERSONAL INCOME
: IT IS THE RESULT OF SUBTRACTING THE INCOME TAXES FROM THE TOTAL PERSONAL INCOME.6-
CONSTANT DOLLARS:
THE VALUE / PRICE OF SOMETHING OVER TIME. THE VALUE OF THE DOLLAR IN TERMS OF WHAT IT CAN PURCHASE. THIS HAS TO BE ADJUSTED TO COMPENSATE FOR CHANGES IN PRICES (INFLATION). TO ACCOMPLISH THAT, IT IS NECESSARY TO SELECT A BASE YEAR.7-CURRENT DOLLARS: THE VALUE OF THE DOLLAR IN A PARTICULAR YEAR. WHAT YOU CAN BUY, CONSIDERING THE PRICES AT THE MOMENT.
8-PER CAPITA GNP: IT IS THE RESULT OF DIVIDING THE NATION GNP IN CONSTANT DOLLARS BY ITS POPULATION. THIS IS USED TO COMPARE THE ECONOMIC OUTPUT OF DIFFERENT NATIONS IN ORDER TO ESTIMATE THE STANDARD OF LIVING.
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STANDARD OF LIVING
: AMOUNT OF GOODS AND SERVICES AVAILABLE FOR THE PEOPLE OF A NATION. Also seePurchasing Power Parity
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BUSINESS CYCLE
: THE UPS AND DOWNS IN THE LEVEL OF ECONOMIC ACTIVITY. CONTRACTION vs. EXPANSION. PEAK vs. TROUGH. RECESSION vs. DEPRESSION. See effects of Wars,11-
AGGREGATE DEMAND
: THE SUM OF GOODS & SERVICES THAT CONSUMERS, PRODUCERS, GOVERNMENT, AND FOREIGN BUYERS (NET EXPORTS) PURCHASE. 12-FULL EMPLOYMENT
: TOTAL GOODS & SERVICES THAT THE ECONOMY COULD PRODUCE IF ITS RESOURCES WERE FULLY EMPLOYED (PRODUCTIVE CAPACITY). 13-THE MULTIPLIER EFFECT
: ANY SPENDING PROVOKES MORE SPENDING ACCORDING TO THE MPC / MPS.14-MARGINAL PROPENSITY TO CONSUME / SAVE (MPC / MPS): THE PUBLIC’S INCLINATION TO SPEND / SAVE.
15-
OPEN MARKET OPERATIONS
: SELLING / BUYING OF GOVERNMENT BONDS 16-CONSUMER PRICE INDEX
(C.P.I.): Compiled monthly by Department of Labor. Control Inflation 17-PRODUCTIVITY
&MARGINAL PRODUCT
:18-
CONSUMER CONFIDENCE
: SPENDING LEVELS. 19-BANKRUPCY
&FORECLOSURE
:20-
INFLATION
/UNEMPLOYMENT
:PHILLIPS CURVE
COMPONENTS OF THE GNP
1-PERSONAL CONSUMPTION EXPENDITURES (2/3 OF THE TOTAL) a)-DURABLE GOODS (FURNITURE, CARS, ELECTRIC EQUIPMENTS) b)-NONDURABLE GOODS (FOOD, FUEL, MEDICINES, CLOTHES) c)-SERVICES (RECREATION, MEDICAL CARE, RESTAURANTS)
2-GROSS PRIVATE DOMESTIC INVESTMENT (BUSINESS INVESTMENTS: WAGES, RAW MATERIALS, CONSTRUCTION OF NEW BUILDINGS, MACHINERY).
3-GOVERNMENT SPENDING: FEDERAL, STATE, LOCAL (DEFENSE, WAGES, FUNCTIONING OF GOV.) NOTE: WELFARE IS NOT INCLUDED (TRANSFER OF MONEY FROM SOME CITIZENS TO OTHERS).
4-NET EXPORTS OF GOODS AND SERVICES (EXPORTS - IMPORTS)
LIMITATIONS OF THE GNP
1-IT DOES NOT INCLUDE “NON MARKET” ACTIVITIES (HOMEMAKERS WORK, UNDERGROUND ECONOMY, ETC.
2-IT DOES NOT MEASURE ECONOMIC WELL-BEING (QUALITY OF THE NATION OUTPUT: FOOD OR TOBACCO OR POLLUTION).
3-IT DOES NOT CONSIDER MAJOR SOCIAL INDICATORS: LITERACY, HEALTH, GENDER SITUATION, ETC. (SEE HDI & GDI).
COMPOSITION OF THE NATIONAL INCOME
TOTAL INCOME - (CAPITAL CONSUMPTION ALLOWANCE + SALES TAXES + EXCISE TAXES) = NATIONAL INCOME = COMPENSATION OF EMPLOYEES + PROPRIETORS’ INCOME + CORPORATE PROFITS + RENTAL INCOME + NET INTEREST.
NATIONAL INCOME:
1-COMPENSATION OF EMPLOYEES ( WAGES, TIPS, BONUSES, PENSIONS) 2-PROPIETORS’ INCOME (EARNINGS OF UNINCORPORATED BUSINESSES & FARMS). 3-CORPORATE PROFITS
4-RENTAL INCOME (PROPERTY RENT + PATENTS + COPYRIGHTS) 5-NET INTEREST (INTEREST RECEIVED - PAID INTEREST).
6-PERSONAL INCOME = COMPENSATION OF EMPLOYEES + TRANSFER OF MONEY BY 7-THE GOVERNMENT: WELFARE, PENSIONS, ETC.
THE BUSINESS CYCLES
1-RECESSION: ECONOMIC ACTIVITY GOES INTO A DECLINE. MILD AND SHORT. (CONSUMERS BUY LESS, MANUFACTURING SLOWS, UNEMPLOYMENT RATE RISES, WAGES FALL). 2-DEPRESSION OR CRISIS: THE BOTTOM OF THE CYCLE. SERIOUS AND SOME TIMES LONG. THE GREAT DEPRESSION (1929-39): 25% OF UNEMPLOYMENT, 4,000 CRACKED BANKS, GREAT BUSINESS FAILURE.
3-EXPANSION OR RECOVERY: SPENDING BEGINS TO INCREASE, UNEMPLOYMENT DROPS, PRODUCTION EXPANDS.
4-PEAK OR PROSPERITY: THE UPPER TURNING POINT OF BUSINESS CYCLE. ECONOMY CLOSES IN ON ITS MAXIMUM CAPACITY, FULL EMPLOYMENT.
THEORIES ABOUT THE CAUSES OF THE BUSINESS CYCLE EXTERNAL CAUSES:
1-INNOVATIONS (INDUSTRIAL REVOLUTION, THE AUTOMOBILE, THE COMPUTER): THIS CREATES A TEMPORARY EXPANSION AND PROSPERITY BECAUSE THE HUGE INVESTMENTS THAT IN SOME MOMENT RETURN TO TO A NORMAL LEVEL.
2-POLITICAL EVENTS (WARS, BOYCOTTS, CONFLICTS): SEE OPEC AND THE LOST DECADE. INTERNAL CAUSES:
1-PSYCHOLOGICAL FACTORS: THE SELF-FULFILLING PROPHECY (IF PEOPLE & BUSINESS BELIEVE THAT THE ECONOMY IS GOING TO IMPROVE OR DECLINE THIS “FEELING” WILL AFFECT THE REAL ECONOMY.
2-UNDERCONSUMPTION: DURING THE PERIOD OF PROSPERITY, SAVINGS ARE HIGH. PRODUCTION INCREASE UNTIL IT IS OUTPACING CONSUMPTION AND THEN BUSINESS ACTIVITY IS REDUCED = RECESSION BEGINS.
PRODUCTIVITY