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Unformatted text preview: 3-31The meaning of moneyMoney is the set of assets in an economy that people regularly use to buy goods and services from other peopleMoney eliminates the need for a double coincidence of wantsThe Functions of MoneyMoney has three functions in the economy:oMedium of exchangeA medium of exchange is an item that buyers give to sellers when they want to purchase goods and servicesA medium of exchange is anything that is readily acceptable as paymentoUnit of AccountA unit of account that is the yardstick people use to post prices and record debtsoStore of ValueA store of value is an item that people can use to transfer purchasing power from the present to the futureLiquidity is the ease with which an asset can be converted into the economys medium of exchangeThe Kinds of MoneyCommodity money takes the form of a commodity with intrinsic value.examples: Gold, silver, cigarettesFiat money is used as money because of government decreeMoney in the US EconomyCurrency is the paper bills and coins in the hands of the publicDemand deposits are balances in bank accounts that depositors can access on demand by writing a checkTwo measures of the money stock in the US EconomyM1oThings that can easily be transferred into items (cash, checks, etc)M2oM1 + stuff that is a little harder to turn into assets ( savings deposits, mutual funds, etc)April 2, 2008Monetary AggregatesDifferent types of money are classified in monetary aggregates according to their degree of liquidityMost liquid assets are classified as M1Less liquid assets are classified as M2The Federal Reserve SystemThe Fed Reserve (Fed) serves as the nations central bankoIt is designed to oversee the banking systemoIt regulates the quantity of money in the economyThe Fed was created in 1913A series of bank failures convinced Congress that the US needed a central bank to ensure the health of the nations banking systemThe primary elements (or entities) in the Federal Reserve System are:oThe Board of GovernorsoThe Regional Reserve BanksoThe Federal Open Market CommitteeThe Feds OrganizationThe Fed is run by a Board of Governors...
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This note was uploaded on 04/10/2008 for the course ECON 1015 taught by Professor Myounglee during the Spring '08 term at Missouri (Mizzou).
- Spring '08