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Econ - Unit 3 - 3-31The meaning of money•Money is the set...

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Unformatted text preview: 3-31The meaning of money•Money is the set of assets in an economy that people regularly use to buy goods and services from other people•Money eliminates the need for a “double coincidence of wants”The Functions of Money•Money 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 future•Liquidity is the ease with which an asset can be converted into the economy’s 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 Economy•Currency is the paper bills and coins in the hands of the public•Demand deposits are balances in bank accounts that depositors can access on demand by writing a checkTwo measures of the money stock in the US Economy•M1oThings 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 Aggregates•Different types of money are classified in monetary aggregates according to their degree of liquidity•Most liquid assets are classified as M1•Less liquid assets are classified as M2The Federal Reserve System•The Fed Reserve (Fed) serves as the nation’s central bankoIt is designed to oversee the banking systemoIt regulates the quantity of money in the economy•The Fed was created in 1913•A series of bank failures convinced Congress that the US needed a central bank to ensure the health of the nation’s banking system•The primary elements (or entities) in the Federal Reserve System are:oThe Board of GovernorsoThe Regional Reserve BanksoThe Federal Open Market CommitteeThe Fed’s Organization•The Fed is run by a Board of Governors...
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Econ - Unit 3 - 3-31The meaning of money•Money is the set...

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