MacroEcon Chapter 13

MacroEcon Chapter 13 - Final. 07:47 Chapter 13: Money,...

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Final. 07:47 Chapter 13: Money, Banks and Federal Reserve Federal reserve system: quasi-independent agency that works alongside government; works with private banks I. Money Asset widely accepted as means of payment Means of payment: anything acceptable as payment for goods and services Credit card= not an asset, but instantaneous loan Stocks, bonds and gold bar: fall means of payment test Money includes cash only if its in the hands of the public A. Money Supply largest form of money ($858) cash in hands of public: coins/currency in circulation 2 nd largest: checkable deposits ($801) accounts held by households and business firms at commercial banks (ex: BOFA, Chase) demand deposits: most basic checking accounts people write checks; other people go to the bank and get money in demand no interests automatic transfers from savings- pay interests Travelers- printed checks ($5 bill) Money supply- total amount of money held by the public Cash in hand of public and checking account deposit; travelers check
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1. M1 vs M2 money supply= M1 (cash and checking and travelers) M2- includes all of M1 plus deposits easily turned into cash or checking deposit Ex: includes savings accounts, money marked deposits, money market funds, certificates of deposit under 100K Much larger than M1 ($8 trillion) Economists use M2 more because its more stable because people move from 1 account to another This would affect M1 and it would balloon B. Functions of Money money serves 3 functions means of payment: increases efficiency of trading compared to bartering (exchanging) without money- economy= less productive store of value: one way to hold wealth unit of account: measures how much something is worth compare costs of different goods when we trade unit of account and means of payment= closely related the way we think and record transaction payment: how payment is actually made C. Brief History of Money before 1790- each colony had its own currency, after constitution= $ was made government defined unit of account, did not provide means of payment civil war-> issue the greenback; then government got out of business
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Federal Reserve system Monetary authority of the US; charged with creating and regulatory nations supply of money 1. Why paper currency accepted as means of payment commodity money: precious metals, furs, jewels as means of payment non-money value gave its ultimate value paper currency certain amount of gold or silver held by bank 1.currency could be exchange for valuable commodity such as gold and silver 2. issues could print new money when acquired additional gold and silver fiat money: something that serves as means of payment of government declaration force behind dollar- long standard acceptability by others II. Banking System A. Financial Intermediaries in general business firms that specialize in brokering between savers and borrowers firms whose revenues exceed expenditures and channel funds to firms whose expenditures exceed revenues intermediaries can predict patterns of inflows of funds
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This note was uploaded on 12/13/2011 for the course ECON 8732 taught by Professor Kitsikopoulos during the Fall '11 term at NYU.

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MacroEcon Chapter 13 - Final. 07:47 Chapter 13: Money,...

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