Chapter 16 17 18 19 20 21 consolidation

Chapter 16 17 18 19 20 21 consolidation - Chapter 16 The...

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Chapter The Monetary System 16
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The Meaning of Money Money Set of assets in an economy That people regularly use To buy goods and services from other people The functions of money Medium of exchange Unit of account Store of value 2
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The Meaning of Money Medium of exchange Item that buyers give to sellers When they want to purchase goods and services Unit of account Yardstick people use to post prices and record debts Store of value Item that people can use to transfer purchasing power 3
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The Meaning of Money Liquidity Ease with which an asset can be converted into the economy’s medium of exchange The kinds of money Commodity money Money that takes the form of a commodity with intrinsic value Intrinsic value Item would have value even if it were not 4
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The Meaning of Money The kinds of money Fiat money Money without intrinsic value Used as money because of government decree Money in the U.S. economy Money stock Quantity of money circulating in the economy 5
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The Meaning of Money Money in the U.S. economy Currency Paper bills and coins in the hands of the public Demand deposits Balances in bank accounts Depositors can access on demand by writing a check Measures of money stock M1, M2 6
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Figure Two measures of the money stock for U.S. economy 1 7 The two most widely followed measures of the money stock are M1 and M2. This figure shows the size of each measure in 2007
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2007: $759 billion of currency outstanding Average adult: holds about $3,272 of currency Much of the currency is held abroad Much of the currency is held by drug dealers, tax evaders, and other criminals Currency – not a particularly good way to hold wealth Can be lost or stolen Doesn’t earn interest Where is all the currency? 8
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The Federal Reserve System Federal Reserve (Fed) The central bank of the United States Central bank Institution designed to Oversee the banking system Regulate the quantity of money in the economy 9
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The Federal Reserve System The Fed’s organization Created in 1913 Board of governors 7 members Appointed by the president & confirmed by the Senate Have 14-year terms The chairman Directs the Fed staff Presides over board meetings Testifies regularly about Fed policy in front of congressional committees. 10
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The Federal Reserve System The Fed’s organization The Federal Reserve System Federal Reserve Board in Washington, D.C. 12 regional Federal Reserve Banks Major cities around the country The presidents - chosen by each bank’s board of directors 11
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The Federal Reserve System The Fed’s jobs Regulate banks & ensure the health of the banking system Regional Federal Reserve Banks Monitors each bank’s financial condition Facilitates bank transactions - clearing checks Acts as a bank’s bank The Fed – lender of last resort 12
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This note was uploaded on 05/25/2011 for the course ECON 210 taught by Professor Unkwon during the Spring '11 term at Grand Valley State.

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Chapter 16 17 18 19 20 21 consolidation - Chapter 16 The...

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