CH15_ECON2301 - Macroeconomics ECON 2301 Spring 2009...

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Unformatted text preview: Macroeconomics ECON 2301 Spring 2009 Marilyn Spencer, Ph.D. Professor of Economics Chapter 15 Chapter 15: Money, Banking, and Central Banking 15-3 Learning Objectives Define the fundamental functions of money Identify key properties that any goods that function as money must possess Explain official definitions of the quantity of money in circulation Understand why financial intermediaries such as banks exist Describe the basic structure of the Federal Reserve System Discuss the major functions of the Federal Reserve 15-4 Money Money Any medium that is universally accepted in an economy both by sellers of goods and services and by creditors as payment for debts 15-5 Table 15-1 Types of Money 15-6 The Functions of Money The 4 functions of money 1. Medium of exchange 2. Unit of accounting 3. Store of value (purchasing power) 4. Standard of deferred payment 15-7 The Functions of Money (cont'd) Medium of Exchange Any item that sellers will accept as payment Barter The direct exchange of goods and services for other goods and services without the use of money 15-8 The Functions of Money (cont'd) Medium of exchange Money facilitates exchange by reducing transaction costs associated with means-of- payment uncertainty. Permits specialization, facilitates efficiencies Barter Simply a direct exchange Double coincidence of wants 15-9 The Functions of Money (cont'd) Unit of Accounting A measure by which prices are expressed The common denominator of the price system A central property of money 15-10 The Functions of Money (cont'd) Store of Value The ability to hold value over time A necessary property of money Money allows you to transfer value (wealth) into the future. 15-11 The Functions of Money (cont'd) Standard of Deferred Payment A property of an item that makes it desirable for use as a means of settling debts maturing in the future An essential property of money 15-12 Liquidity Liquidity The degree to which an asset can be acquired or disposed of without much danger of any intervening loss in nominal value and with small transaction costs Money is the most liquid asset. 15-13 Figure 15-1 Degrees of Liquidity 15-14 Liquidity (cont'd) Question What is the cost of holding money (its opportunity cost)? Answer It is the alternative interest yield obtainable by holding some other asset. 15-15 Monetary Standards, or What Backs Money Questions What backs money? Is it gold, silver, or the federal government? Answer Your confidence 15-16 Monetary Standards, or What Backs Money (cont'd) Transactions Deposits Checkable and debitable account balances in commercial banks and other types of financial institutions, such as credit unions and mutual savings banks Any accounts in financial institutions on which you can easily transmit debit-card and check payments without many restrictions 15-17...
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This note was uploaded on 03/27/2012 for the course ECON 2301 taught by Professor Staff during the Spring '08 term at Texas A&M University, Corpus Christi.

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CH15_ECON2301 - Macroeconomics ECON 2301 Spring 2009...

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