CH10 SH - The Money Supply & the Federal Reserve System An...

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An Overview of Money What Is Money? Commodity and Fiat Monies Measuring the Supply of Money in the United States The Private Banking System How Banks Create Money A Historical Perspective:  Goldsmiths The Modern Banking System The Creation of Money The Money Multiplier The Federal Reserve System Functions of the Federal Reserve The Federal Reserve Balance Sheet How the Federal Reserve Controls the Money Supply The Required Reserve Ratio The Discount Rate Open Market Operations The Supply Curve for Money
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An Overview of Money: What Is Money? Money is anything that is generally accepted as a medium of exchange, a means of payment Barter The direct exchange of goods and services for other goods and services. Medium of exchange, or means of payment What sellers generally accept and buyers generally use to pay for goods and services.
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Coincidence of Wants Cook Farmer Mover Writer Carpenter Barber wants furniture wants haircut wants corn needs to eat needs to move wants to read a novel
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An Overview of Money: What Is Money? Unit of Account A standard unit that provides a consistent way of quoting prices. Store of Value An asset that can be used to transport purchasing power from one time period to another. Liquidity property of money The property of money that makes it a good medium of exchange as well as a store of value: It is portable and readily accepted and thus easily exchanged for goods.
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An Overview of Money: Fiat or token money commodity monies Items used as money that also have intrinsic value in some other use. fiat, or token, money Items designated as money that are intrinsically worthless. legal tender Money that a government has required to be accepted in settlement of debts.
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6 of 31 Measuring the Supply of Money in the USA M1, or transactions money Money that can be directly used for transactions. M1 currency held outside banks + demand deposits + traveler’s checks + other checkable deposits
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Measuring the Supply of Money in the USA M2, or broad money M1 plus savings accounts, money market accounts, and other near monies. near monies Close substitutes for transactions money, such as savings accounts and money market accounts. M2 ≡ M1 + Savings accounts + Money market accounts + Other near monies
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Monetary Aggregates
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Question: US population about 305 million people Currency in circulation about $860 billion, mostly $100 bills $2,820 per person Where is this money?
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The Private Banking System Financial intermediaries Banks and other institutions that act as a link between those who have money to lend and those who want to borrow money. A Historical Perspective: Goldsmiths
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This note was uploaded on 02/02/2012 for the course ECON 201 taught by Professor Shea during the Spring '08 term at Maryland.

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CH10 SH - The Money Supply & the Federal Reserve System An...

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