Monetary System

Monetary System - PRINCIPLES OF MACROECONOMICS THE MONETARY...

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PRINCIPLES OF MACROECONOMICS THE MONETARY SYSTEM Foster
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WHY DOES MONEY MATTER? US dollar bills are pure fiat money – they have no intrinsic value, and they are not backed by anything that does.
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Initially, the colonists used European commodity money (gold and silver coins) and then tobacco and wampum. Later, commodity-backed (silver) paper money issued by private banks were used until the Civil War. During the Civil War, the US govt began issuing dollars which would turn into commodity-backed (gold) money. In 1933, President Franklin D. Roosevelt broke the link between dollars and gold to much opposition, “This will be the end of Western civilization.” The link was dropped for good in August 1971. The History of the U.S. Dollar
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4 How much “money” does Bill Gates have? The money supply (or stock of money ) is the quantity of money available in the economy
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5 Measures of the U.S. Money Supply M1 : currency (bills & coins carried by public), demand deposits (balances in bank accounts), traveler’s checks, and other checkable deposits. M1 = $1.71 trillion (February 2010) M2 : everything in M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories. M2 = $8.52 trillion (February 2010)
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US Money Supply, Feb 2010 Currency 51% Traveler' s checks 0% Demand Deposits 27% Other M1 22% M1 $1710.3 billion Currency 10% Traveler's checks 0% Demand Deposits 5% Other M1 5% Savings Deposits 58% Time Deposits 13% Retail Money Funds 9% M2 $8523.9 billion
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Monetary System - PRINCIPLES OF MACROECONOMICS THE MONETARY...

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