assign6 - Intro Macro N. Sheflin ASSIGNMENT 6 NOTES: We...

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I n t r o M a c r o N . S h e f l i n ASSIGNMENT 6 NOTES : We introduce Money, Banking and the Financial System . Lots here, interesting, simple, important points. . Early Warning - ONLINE MIDTERM –Wednesday 10/26 4pm through Friday 10/28 8pm – Must be taken in 1 hour window during this period. COVERS weeks 1-8 in 50 multiple choice questions covering material from these weeks. Investment Game Round 2 – efficient markets, random walks, etc. – some questions on hw6 about these READING Rittenberg Chapter 9 (skip the last section on the Fed “THE FEDERAL RESERVE SYSTEM” – we will do it next week) and chapter 10 – JUST the section on “DEMAND, SUPPLY AND EQUILIBRIUM IN THE MONEY MARKET” Short, simple article on capital and leverage in banking at: www.mercatus.org/PDFDownload.aspx?contentID=26042 And on the shadow banking system at: http://www.thefiscaltimes.com/Issues/The- Economy/2010/09/28/Shadow-Banks-Pose-Major-Threat-to-Financial-Stability.aspx And an outline on the financial system (skim) https://www2.bc.edu/~irelandp/ec261/chapter2.pdf Additional background at: A Short History of Money http://www.vectorsite.net/twmoney.html Fun facts about money from SF Federal Reserve Bank http://www.sf.frb.org/federalreserve/money/funfacts.html And Dollars and Cents – info about money from Atlanta Fed http://www.frbatlanta.org/pubs/dollarscents/dollars_and_cents- types_of_u_s_paper_money.cfm?redirected=true And finally, so Fed FAQs about money http://www.federalreserveeducation.org/about-the-fed/structure-and- functions/financial-services/fun_facts.cfm Key points and Summary– read carefully before and after the homework. Definition and role of money – anything widely accepted in exchange. Money has three primary roles medium of exchange , unit of account and store of value but the first is what makes money money. M1 definition includes currency, checkable deposits and travelers checks – all of which are used in exchange.Legal tender is NOT required of money, but it helps acceptability. Credit cards are NOT money, just a means of obtaining a loan. Benefits of monetary economy – eliminates the double coincidence requirement of barter (you have to have what they want and they have to have what you want) and the inefficiency of searching and calculating many prices (pigs for cows, candy for soda, etc). Thus an economy using money allows specialization and division of labor , the development of a financial system to channel savings to investment , and increases economic efficiency, output, income and wealth . Role and functions of Banks
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assign6 - Intro Macro N. Sheflin ASSIGNMENT 6 NOTES: We...

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