chapter 21 - 21 TheMonetarySystem TheMonetarySystem...

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The Monetary System The Monetary System E conomics E S S E N T I A L S O F E S S E N T I A L S O F N. Gregory Mankiw N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 21
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In this chapter,  In this chapter,  look for the answers to these questions: look for the answers to these questions: What assets are considered “money”? What are the functions of money? The types of money? What is the Federal Reserve? What role do banks play in the monetary system? How do banks “create money”? How does the Federal Reserve control the money supply? 2
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THE MONETARY SYSTEM 3 What Money Is and Why It’s Important Without money, trade would require barter , the exchange of one good or service for another. Every transaction would require a double coincidence of wants – the unlikely occurrence that two people each have a good the other wants. Most people would have to spend time searching for others to trade with – a huge waste of resources. This searching is unnecessary with money , the set of assets that people regularly use to buy g&s from other people. 0
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THE MONETARY SYSTEM 4 The 3 Functions of Money Medium of exchange : an item buyers give to sellers when they want to purchase g&s Unit of account : the yardstick people use to post prices and record debts Store of value : an item people can use to transfer purchasing power from the present to the future 0
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THE MONETARY SYSTEM 5 The 2 Kinds of Money Commodity money : takes the form of a commodity with intrinsic value Examples: gold coins, cigarettes in POW camps Fiat money : money without intrinsic value, used as money because of govt decree Example: the U.S. dollar 0
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THE MONETARY SYSTEM 6 The Money Supply The money supply (or money stock ): the quantity of money available in the economy What assets should be considered part of the money supply? Two candidates: Currency : the paper bills and coins in the hands of the (non-bank) public Demand deposits : balances in bank accounts that depositors can access on demand by writing a check 0
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THE MONETARY SYSTEM 7 Measures of the U.S. Money Supply M1 : currency, demand deposits, traveler’s checks, and other checkable deposits. M1 = $1.7 trillion (November 2009) M2 : everything in M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories. M2 = $8.4 trillion (November 2009) The distinction between M1 and M2 The distinction between M1 and M2 will usually not matter when we talk about will usually not matter when we talk about “the money supply” in this course. “the money supply” in this course. 0
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THE MONETARY SYSTEM 8 Central Banks & Monetary Policy Central bank : an institution that oversees the banking system and regulates the money supply Monetary policy : the setting of the money supply by policymakers in the central bank Federal Reserve (Fed) : the central bank of the U.S. 0
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THE MONETARY SYSTEM 9 The Structure of the Fed The Federal Reserve System consists of:
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This note was uploaded on 05/13/2011 for the course BUS 5000 taught by Professor Hu during the Summer '07 term at Chaminade University.

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chapter 21 - 21 TheMonetarySystem TheMonetarySystem...

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