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Principles of Economics- Mankiw (5th) 587

Principles of Economics- Mankiw (5th) 587 - cal desires in...

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607 IN THIS CHAPTER YOU WILL . . . Examine how the banking system helps determine the supply of money Consider the nature of money and its functions in the economy Learn about the Federal Reserve System Examine the tools used by the Federal Reserve to alter the supply of money When you walk into a restaurant to buy a meal, you get something of value—a full stomach. To pay for this service, you might hand the restaurateur several worn-out pieces of greenish paper decorated with strange symbols, government buildings, and the portraits of famous dead Americans. Or you might hand him a single piece of paper with the name of a bank and your signature. Whether you pay by cash or check, the restaurateur is happy to work hard to satisfy your gastronomi-
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Unformatted text preview: cal desires in exchange for these pieces of paper which, in and of themselves, are worthless. To anyone who has lived in a modern economy, this social custom is not at all odd. Even though paper money has no intrinsic value, the restaurateur is confi-dent that, in the future, some third person will accept it in exchange for something that the restaurateur does value. And that third person is confident that some fourth person will accept the money, with the knowledge that yet a fifth person will accept the money . . . and so on. To the restaurateur and to other people in our society, your cash or check represents a claim to goods and services in the future. T H E M O N E T A R Y S Y S T E M...
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