Chapter 14 Summary - Chapter 14 Summary - Money is any...

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Chapter 14 Summary - Money is any asset that can easily be used to purchase goods and services. Currency in circulation and checkable bank deposits are both considered part of the money supply. Money plays three roles: it is a medium of exchange used for transactions, a store of value that holds purchasing power over time, and a unit of account in which prices are stated. - Over time, commodity money, which consists of goods possessing value aside from their role as money, such as gold and silver coins, was replaced by commodity-backed money, such as paper currency backed by gold. Today the dollar is pure flat money, whose value derives solely from its official role. - The Federal Reserve calculates two measures of the money supply. M1 is the narrowest monetary aggregate, containing only currency in circulation, traveler’s checks, and checkable bank deposits. M2 includes a wider range of assets called near-moneys, mainly other forms of bank deposits that can easily be converted into checkable bank deposits. - Banks allow depositors immediate access to their funds, but they also lend out most of the funds deposited in their care. To meet demands for cash, they maintain bank reserves composed of both currency held in vaults and deposits at the Federal Reserve. The reserve ratio is the ratio of bank reserves
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This note was uploaded on 01/24/2012 for the course ECON 2105 taught by Professor Iacopetta during the Spring '08 term at Georgia Institute of Technology.

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Chapter 14 Summary - Chapter 14 Summary - Money is any...

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