ECON 205 Lecture (4.23.2008)

ECON 205 Lecture (4.23.2008) - a certain percent of the...

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ECON-205 Lecture 4-23-2008 Three types of budget - Balanced (revenues = expenditures) - Deficit (expenditures > revenues) - Surplus (expenditures < revenues) Money - What is money? - Functions of money (Pages 366-367) o Standard of value o Standard of deferred payment o Store of value o Medium of exchange - “Fiat money”: money that is not backed by gold, and you have to accept it the money (“pegged”) Barter: exchanging commodities Banking system - Function of banks o Accepting deposits o Lending money o Money changing (converting from one currency to another) o Collecting and paying agency Usury Federal Reserve Bank (FRB) - Establishment of the FRB: 1913 o First time we established a central bank - Functions o Primary functions (tools to influence the money supply… either increase the money supply (so investment goes up), or to reduce the money supply (so investment goes down). Reserve ratio: requirement by the FRB upon commercial banks to keep
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Unformatted text preview: a certain percent of the deposit cash Discount rate: rate of interest charged by the FRB when commercial banks borrow money Interest Open market operations: selling and buying U.S. bonds by the FRB (most productive/effective tool) o Secondary functions Holding the deposit of commercial banks Providing for the collection of checks Supplying the economy with paper (currency) Acting as a fiscal agent (selling bonds to the U.S. government)s ECON-205 Lecture 4-23-2008 Regulations of the supply of money-12 Branches o Headquarters in Washington, D.C. Regulation of the money supply-Money supply: M1 (coins, American dollar, checks, traveler’s checks), M2 (M1 + Savings), M3 (M1 + M2 + CD) How the budget affects the system- Balance sheet (commercial banks)...
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