Chapter 4

Chapter 4 - Kimberly Zhang Chapter 4 Inflation: overall...

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Kimberly Zhang Chapter 4 Inflation: overall increase in prices o Hyperinflation: high inflation Functions of Money o Store of value: money is a way to transfer purchasing power from the present to the future o Unit of account: money provides the terms in which prices are quoted and debts are recorded o Medium of exchange: what we use to buy goods and services Liquidity: ease with which money is converted into other things Types of Money o Fiat money: money that has no intrinsic value o Commodity money: using a commodity with some intrinsic value for money Gold standard: when people use gold as money How the Quantity of Money is Controlled o Money supply: quantity of money available o Monetary policy: control over money supply Delegated to partially independent central bank called Federal Reserve Federal Open Market Committee made up of members of Federal Reserve Board Control money supply through open market operations: purchase and sale of government bonds When Fed wants to increase money supply, buys government bonds from public How Quantity of Money is Measured o C: Currency o M1: Currency, demand deposits (funds held in checking accounts), traveler’s checks, other checkable deposits o M2: M1, retail money market mutual fund balances, saving deposits, small time deposits
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Chapter 4 - Kimberly Zhang Chapter 4 Inflation: overall...

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