mankiw11-money_banking

mankiw11-money_banking - Chapter 11 T lick to edit Master...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
Click to edit Master subtitle style 9/29/11 The Monetary System Chapter 11
Background image of page 1

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

View Full DocumentRight Arrow Icon
9/29/11 Learning Outcomes 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?
Background image of page 2
9/29/11 What Money Is and Why It’s 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.
Background image of page 3

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

View Full DocumentRight Arrow Icon
9/29/11 The Functions of Money Medium of exchange : an item buyers give to sellers when they want to purchase goods and services. 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.
Background image of page 4
9/29/11 The 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 government decree Example: the U.S. dollar
Background image of page 5

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

View Full DocumentRight Arrow Icon
9/29/11 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
Background image of page 6
9/29/11 Measures of the U. S. Money M1 : currency, demand deposits, traveler’s checks, and other checkable deposits. M1 = $1.4 trillion (June 2008) M2 : everything in M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories. M2 = $7.7 trillion (June 2008)
Background image of page 7

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

View Full DocumentRight Arrow Icon
9/29/11 Value of Money The U.S. money supply is guaranteed by government’s ability to keep the value of money relatively stable. Money has value because of its acceptability , legal tender designation, and relative scarcity . Government has decreed currency as legal tender, thus paper money is a valid and legal means of payment of debt.
Background image of page 8
9/29/11 Money and Prices The purchasing power of the dollar varies inversely with the price level . If the price level rises, the purchasing power of the dollar falls, and vice versa. Inflation may also affect the purchasing power of money and its acceptability. When the government prints too much money, the purchasing power of money declines. Also, runaway inflation may significantly reduce the purchasing power of the dollar and may cause it to cease being used as a medium of exchange.
Background image of page 9

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

View Full DocumentRight Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/29/2011 for the course ECO 2315 taught by Professor Bishop during the Fall '09 term at Texas State.

Page1 / 38

mankiw11-money_banking - Chapter 11 T lick to edit Master...

This preview shows document pages 1 - 10. Sign up to view the full document.

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