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Unformatted text preview: Days 10 (and 11?) Money and the FED In the Keynesian Model, now Equilibrium is AD=Y, C = a + MPC (Y + Tr Tx) Y = C + G + I + (X-M) So, Lets figure out where money comes in: Capital Market Where the supply of funds is allocated to those who wish to borrow Financial System involves all institutions involved in moving savings from households and firms to those in households and firms who would like to spend more than their income (borrowers). Financial intermediaries these institutions Commercial banks Life insurance companies Credit unions Savings and Loans Mutual Savings Banks Finance Companies Mutual Funds Pension Funds What is Money in General? Medium of Exchange Store of Value Unit of Account Standard of Deferred Payment What can be money? Example: Cigarettes in German POW camps during WWII. Money Supply and the FED: The Federal Reserve System the Central Bank of the United States, established 1913. An independent agency of the government set up to control the money supply. Board of Governors: Coordinate and regulate Monetary Policy. Members appointed to 14-year terms by the president, approved by Congress Open Market Committee: Directs FED sales and purchases of U.S. Treasury Bonds. Made up of Board of Governors plus 5 Reserve Bank Presidents FED Structure (Figure 17.5) There are 12 regional Federal Reserve Banks (Figure 17.6) Money Supply: Banks make money available in part based on the interest rate (Figure 17.8) Measures of the Money Supply:...
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- Spring '08