Unit 4 : Money


Uses of money
  •  Medium of exchange 
    • Serve to trade on product for another. 
  • Unit of Account 
    •  Establish economical worth.
  • Store of value 
    • Money holds its value over a period of time where products may not.
Type of Money
  • Representative Money 
    • Paper money that is backed by something tangible that gives it values 
    • EX: IOU
  • Commodity Money 
    • Gets its value from the taste of materialized from which it is made 
    • EX: Gold , Sliver 
  • Flat Money 
    • It is money because the government say so. 
Characteristics of money 
  • Durability 
    • Is money durable? Yes 
  • Portability
    • You can carry money in different places  
  • Divisibility
    • Money can be broken down in many ways
  • Acceptability
    • Money is accepted anywhere 
  • Uniformity
    • Scarcity and limited supply
  • Money supply 
    • M1 
    • Liquidity: easily convert to cash 
      • Currency(coins & cash )
      • Checkable deposits/Demand accounts/Checking Account  
      • Traveler's check
    • M2 
      • Consists of M1 money, saving accounts , money markets account.
      • Meant to save not sale     
    • M3
      • M2 + Certificate of deposits 
Balance sheet  
  • Summarizes the financial position at a certain time
  • The value of assets must equal liability 
  • Assets 
    • (RR) Required Reserves 
    • (ER) Excess Reserves 
    • Bonds 
    • Loans 
    • Property 
  • Liability 
    • Demand Deposits 
    • Owners's Equity
      • Based upon stocks( what you invested in)
    • Net worth 
      • Based upon what you done in a society ( what you earned )
Money creation 
  • Putting new money into circulation 
  1. Fed buy bonds from the public or from a financial institution - Known as (OMO) Open market operation
  2. Banks make loans to the public 
    • Money supply increase when banks make loans
    • The more loans banks make the more money in circulation
    • A bank can loan any amount that is excess to it regular reserves 
    • The banking system can create loans in multiple of original loan 
  • Reserves or Total reserves 
    • Are the amount of deposit that a bank accepted but cant loan out 
  • Required Reserves 
    • Are the amount a bank must keep on hand by law
    • Required reserves ratio (RRR) - determined this amount 
Functions of the Fed 
  • Issues paper currency 
  • Set reserve requirements and holds reserve of banks
  • Lends money to banks and charges them interest
  • Check clearing service for banks 
  • Acts as personal bank for the government 
  • Supervises member banks
  • Controls the money supply in the economy 
3 types of multiple deposit expansion question 
  1. Calculate the initial change in excess reserves (aka the amount a single bank can ban from the initial deposit )
  2. Calculate the change in loans in the banking system 
  3. Calculate the change in the money supply sometimes type 2 type 3 will have the same results (i.e No Fed involvement )
  4. Calculate the change in Demand deposit (DD)














Comments

Post a Comment

Popular posts from this blog

Unit 3: The AS/AD models

Image
The equilibrium of AS &AD determines current output (GDPr) and the price level Full employment - equilibrium exists where AD intersects SRAS & LRAS at the same point  Recessionary Gap- a recessionary gap exists when equilibrium occurs full employment output. Inflationary Gap- an inflationary gap exists when equilibrium occurs beyond full employment output  U% - unemployment 𝝅% - inflation  3 Ranges of AS   Keynesian of horizontal range Not fully using all of the resources Could be a recession or depression (not where need to be) below full employment  Intermediate Resources are getting closer to full employment, which creates upward pressure on wages and price  Classical or vertical range Real GDP is at a level with unemployment  at the full employment level where any increase in demand  will result only in an increase in prices Demand pull inflation (Always increasing ) Increase in price ...
Read more

Unit 1 : Supply

Image
Supply   - the quantity that suppliers are willing and able to produce at various prices . The law of  Supply   - there is a direct relationship between price and quantity supply . what causes a change in quantity supplied  ? △  in price Determinants  △ in # of sellers  △ in the cost of production resources ( current price ) △ in  weather △ in technology △ in taxes or subsidies △ in exceptions ( future) Increase in supply = curve shift right ; price increase quantity increase  Decrease in supply = curve shift left ; price decrease quantity decrease 
Read more

Basic economic concepts

                                                  Macroeconomics vs Microeconomics  Macroeconomics - the study of the economy as a whole. Microeconomics - the study of individual parts of the economy.                                                 Positive vs Normality economics  Positive -  claims that attempt to describe the world as is ( ex. minimum wages law causes unemployment) Normality - claims that attempt to prescribe how the world should be (ex . the government should raise the minimum wage)                                                               Want...
Read more