Ch09-8e_macroyas

Ch09-8e_macroyas - CHAPTER 9 Money, the Price Level, and...

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Money, the Price Level, and Inflation CHAPTER 9
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After studying this chapter you will be able to Define money and describe its functions Explain what determines the demand for money, the supply of money, and the nominal interest rate Explain how the quantity of money influences the price level and inflation in the long run
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Money Makes the World Go Around Money has taken many forms. What is money today? What happens when the bank lends the money we’re deposited to someone else? How does the Fed influence the quantity of money? What happens when the Fed creates too much money?
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What is Money? Money is any commodity or token that is generally acceptable as a means of payment. A means of payment is a method of settling a debt. Money has three other functions: Medium of exchange Unit of account Store of value
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What is Money? Medium of Exchange A medium of exchange is an object that is generally accepted in exchange for goods and services. In the absence of money, people would need to exchange goods and services directly, which is called barter . Barter requires a double coincidence of wants, which is rare, so barter is costly. Unit of Account A unit of account is an agreed measure for stating the prices of goods and services.
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What is Money? Store of Value As a store of value , money can be held for a time and later exchanged for goods and services. Money in the United States Today Money in the United States consists of Currency Deposits at banks and other depository institutions Currency is the general term for notes and coins.
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What is Money? Official Measures of Money The two main official measures of money in the United States are M1 and M2. M1 consists of currency and traveler’s checks and checking deposits owned by individuals and businesses. M2 consists of M1 plus time, saving deposits, money market mutual funds, and other deposits.
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What is Money? Figure 9.1 illustrates the composition of M1 and M2 in June 2005 and shows the relative magnitudes of their components.
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What is Money? Are M1 and M2 Really Money?
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Ch09-8e_macroyas - CHAPTER 9 Money, the Price Level, and...

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