Menu_13_Apr_11 - M2 C Money How do banks create it 1 Model...

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TODAY’S MENU: Wednesday 13 April 2011 I. BUSINESS A. Practice Problems 1. Chapter 30: 7-11, 13-15, 20, 21, 24 II. SUBSTANCE A. Money: the basics 1. Definitions 2. Five functions a. Means of payment i. Medium of exchange ii. Means of unilateral payment b. Unit of account c. Standard of value d. Store of value e. Standard of deferred payment 3. What gives Federal Reserve notes their value? B. Money: How (and why) is it measured? 1. Money as a Medium of Exchange a. M1 2. Money as a Store of Value a. Concept of Liquidity b.
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Unformatted text preview: M2 C. Money: How do banks create it? 1. Model: Money Supply = MB x money multiplier a. MB = Monetary Base = bank reserves + currency in circulation 2. Multiple Deposit Creation: A fairy tale 3. Conclusions a. More deposits, more loans, greater money supply b. Fewer deposits, fewer loan, lower money supply III. NEXT TIME (Monday, 25 April) A. Finish Chapter 30: The Financial Sector and the Economy B. Begin Chapter 31: Monetary Policy...
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