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
2
3
4
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
