Macro Notes 2

Macro Notes 2 - Money Multiplier Amount deposited x 1/R...

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3 Purposes of Money Store of Value Medium of Exchange Unit of Account Fiat Money- No Real value, backed by governments. Ex: Dollar, Euro, Yen FOMC- Federal Open Market Committee 12 Federal Reserve Banks 7 Board of Govenors+ 5 Bank Presidents ( 4 Rotating, NY Fed permanent) Federal Funds Rate Target 3 Purposes: Open Market transactions: Buy Bonds to Lower Rate, increase money supply Sell Bonds to Increase rate, decrease money supply Federal reserve requirements: Fractional banking requirement Federal Discount Rate: Rate which fed charges banks to borrow money Types of Money M1-Currency, Checking Accounts, Travelers Checks, Other Checkable Deposits M2- Everything in M1, Savings Accounts, Small CDs(less than 100K), Money Market Mutual Funds Fractional Banking R= Required Reserve Ratio (1-R) x Amount deposited
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Unformatted text preview: Money Multiplier Amount deposited x 1/R Ch.17 Value of Money= 1/P As Value of Money Decreases demand increases As Value of Money Decreases price levels increase Nominal Variables- Measured in Monetary Units Real Variables- Measured in Physical Units Monetary Nuetrality- Changes in Money only affect nominal variables NOT real variables In long-run monetary neutrality holds true In short-run it does not hold Velocity of money- the rate at which money travels around the economy from wallet to wallet. V= (PxY)/M P=Price Level Y= Output M=Quantity of Money Increase in Money- price levels rise, velocity must fall Inflation Tax- Not a true tax, but everyone who holds money is affected. Government Devalues currency to compensate for unpaid income tax...
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Macro Notes 2 - Money Multiplier Amount deposited x 1/R...

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