Handout08

Handout08 - The Monetary System Slides #08 July 19 2010...

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The Monetary System Slides #08 July 19 2010 1 Intro Macro
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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 Intro Macro
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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 From the present to the future 3 Intro Macro
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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 used as money 4 Intro Macro
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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 Intro Macro
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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 Intro Macro
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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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Where is all the currency? 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 Intro Macro 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 Intro Macro
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Handout08 - The Monetary System Slides #08 July 19 2010...

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