Chap 29 PwrPnts - Chapter 29: The Monetary Money is the set...

Chapter 29 : The Monetary
System
Money is the set of assets in an economy
that people regularly use to buy goods and
services from other people.
•
The functions of money in the economy
–
Medium of exchange
–
Unit of account
–
Store of value
1

The Meaning of Money
•
Medium of exchange
–
An item that buyers give to sellers when
they want to purchase goods and
services.
•
Unit of account
–
Yardstick people use to post prices and
record debts
•
Store of value
–
An item that people can use
to transfer purchasing power
from the present to the future.
2

The Meaning of Money
•
Liquidity
–
Ease with which an asset can be
converted into the economy’s medium of
exchange
3

4
Commodity
money :
takes the form of a
commodity with
intrinsic value
Fiat money :
- money without intrinsic value
- used as money because of
government decree
The kinds of money

Money in the U.S. economy
•
Currency
–
Paper bills and coins in the hands of the
public
•
Demand deposits
–
Balances in bank accounts
that depositors can access
on demand by writing a chec k
5

Figure Two measures of the U.S. money stock 1
6
The two most widely followed measures of the money stock are M1 and M2. This
figure shows the size of each measure in 2007
For our purposes:
“money stock” = “money supply” = “quantity of money in the economy”

Where is all the
currency?
7

The Federal Reserve System
•
The Federal Reserve (The Fed)
–
The central bank of the United States
•
Central bank
–
Institution designed to
•
Oversee the ban king system
•
Regulate the qu antity
of money in the economy
8

•
The Fed was created in 1913
•
Run by a Board of governors
–
7 members appointed by the president &
confirmed by the Senate
–
The Chairman is the most
important of the 7 members
•