BA_315_LN_13_MONEY_AND_BANKS

BA_315_LN_13_MONEY_AND_BANKS - MONEY AND BANKS Lecture...

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1 MONEY AND BANKS Lecture Notes #13 BA 315: Economy, Industry, and Competitive Analysis Source: Schiller Chapter 13 Edited by Ali Emami Department of Finance Charles H. Lundquist College of Business University of Oregon
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2 Introduction This is lecture is an introduction to the role of money in the economy. It provides definitions and explains basic mechanics of the money supply and operation of banks with respect to creation of money in. The lecture attempts to provide answers to the following questions: 1. What is money? 2. Where does money come from? 3. What role do banks play in the macro economy? Concepts you will learn Barter Bank Reserves Money Reserve Ratio Transactions Account Required Reserves Money Supply (M1) Excess Reserves Aggregate Demand Money Multiplier Deposit Creation
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3 LECTURE OUTLINE I. The Uses of Money A. Barter f Definition: Barter – The direct exchange of one good for another, without the use of money. B. Medium of exchange - accepted as payment for goods and services (and debts) C. Store of value - can be held for future purchases D. Standard of value - measures price of goods and services E. Many types of "money" - In the history of the U.S., many things have been used as money. 1. Spanish and Portuguese coins 2. Tobacco, grain, fish, furs, gunpowder, bullets, etc. 3. The first paper money in the U.S., greenbacks, was issued in 1861 by the U.S. Federal government. 4. Confederate states also issued paper money to finance their side of the U.S. civil war. F. Headline : “Goods Replace Rubles in Russia’s Vast Web of Trade”(Barter) – Workers in Russia are paid in products such as glassware, shoes and bras. Movie tickets are sold in exchange for eggs and empty bottles. The workers must then resell the products to survive. This barter exchange has occurred as the Russian currency, the Ruble, lost much of its value due to inflation. By some estimates, the barter exchanges account for more than half of the Russian economy. II. The Money Supply A. Cash vs. "Money" 1. Money f Definition : Money – Anything generally accepted as a medium of exchange. 2. Checking accounts can and do perform the same market function as cash B. Transactions Accounts f Definition: Transactions Account – A bank account that permits direct payments to a third party (e.g., with a check). Note : The balance in your transactions account substitutes for cash, and is, therefore, a form of money. C. Basic Money Supply - M1 (Figure 13.1)
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4 1. Money supply (M1) f Definition: Money Supply – Currency held by the public, plus balances in transactions accounts. 2. Composition of M1 a. Transaction-account balances b. Traveler's checks c. Currency in circulation d. Credit cards are NOT considered to be money Note: Cash is a small part of the money supply; most money consists of balances in transactions accounts. D.
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This note was uploaded on 04/22/2008 for the course ECON 315 taught by Professor Aliemami during the Spring '08 term at University of Oregon.

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BA_315_LN_13_MONEY_AND_BANKS - MONEY AND BANKS Lecture...

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