05+Money+and+Inflation - Agenda 1. What is Money? Money and...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
1 5-1 Money and Inflation 5-2 Agenda 1. What is Money? 2. The Federal Reserve System 3. The Quantity Theory of Money 4. Inflation and Interest Rates 5. The Cost of Inflation 5-3 What is Money? Money is a financial asset that serves three functions: 1. The medium of exchange 2. The unit of account 3. A store of value 5-4 What is Money? The three functions of money: 1. The medium of exchange : money is the financial assets that can be used to finalize transactions. Generally accepted in payment for goods and services Generally accepted in the repayment of debts
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 5-5 What is Money? The three functions of money: 2. The unit of account : money is how value in the economy is measured. Indicates the price of all goods and services in the economy. 5-6 What is Money? The three functions of money: 3. A store of value : money is a means of preserving purchasing power. Other assets can also serve as a store of value but not as the medium of exchange. Thus, money is the most liquid of all asset. 5-7 What is Money? What money is not 1. Money is NOT wealth 2. Money is NOT income 5-8 What is Money? Money is any financial asset that serves as the medium of exchange In the U.S., there are two measures of those assets, called monetary aggregates 1. The M1 money supply 2. The M2 money supply
Background image of page 2
3 5-9 What is Money? M1 (in 2009) consists of: 1. Currency $851.4 bn 2. Travelers’ checks $ 5.2 bn 3. Demand deposits $427.9 bn 4. Other checkable deposits $350.3 bn = Total M1 $1,634.8 bn 5-10 What is Money? Money Stock: M1 SA, Bil.$ 10 05 00 95 90 85 80 75 70 65 60 Source: Federal Reserve Board /Haver Analytics 2000 1600 1200 800 400 0 2000 1600 1200 800 400 0 5-11 What is Money? M2 (in 2009) consists of: 1. M1 $1,634.8 bn 2. Small time deposit $1,333.1 bn 3. Savings deposits $4,510.0 bn 4. Retail MMMF’s $ 956.9 bn = Total M2 $8,434.8 bn 5-12 What is Money? Money Stock: M2 SA, Bil.$ 10 05 00 95 90 85 80 75 70 65 60 Source: Federal Reserve Board /Haver Analytics 10000 8000 6000 4000 2000 0 10000 8000 6000 4000 2000 0
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 5-13 What is Money? Money Stock: M1 % Change - Year to Year SA, Bil.$ Money Stock: M2 % Change - Year to Year SA, Bil.$ 10 05 00 95 90 85 80 75 70 65 60 Sources: Federal Reserve Board /Haver Analytics 20 15 10 5 0 -5 -10 20 15 10 5 0 -5 -10 5-14 What is Money? Where does money come from? 1. Currency is issued by the government 2. “Other” money is issued by the financial system 5-15 What is Money? Three groups affect the money supply: 1. The central bank conducts monetary policy The U.S. central bank is the Federal Reserve System 2. Depository institutions (banks) accept deposits and make loans. 3. The public
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 14

05+Money+and+Inflation - Agenda 1. What is Money? Money and...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online