Money - PowerPoint PPT Presentation

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Money

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A Medium of Exchange. Exchanges are made through the use of money. A Unit of Account ... To function as a viable medium of exchange, money must: be generally accepted; ... – PowerPoint PPT presentation

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Title: Money


1
Money
  • Economists define money as anything that is
    generally accepted in exchange for goods and
    services.
  • William McEchern, Economics, p. 599

2
Three Properties of Money
  • Money serves as
  • A Medium of Exchange
  • Exchanges are made through the use of money.
  • A Unit of Account
  • Prices are quoted in terms of money.
  • A Store of Value
  • Money preserves value until it is used in an
    exchange.

3
A Medium of Exchange
  • To function as a viable medium of exchange,
    money must
  • be generally accepted
  • have a high value for its weight
  • be divisible and
  • not be counterfeitable.

4
Official Measures of Money
  • M1
  • Currency in Circulation Demand Deposits Other
    Checkable Deposits Travelers Checks
  • M2
  • M1 Savings Deposits Small time Deposits
    Deposits in Money Market Mutual Funds
  • M3
  • M2 Large Time Deposits

5
The Federal Reserve System (The Fed)
  • Congress passed the Federal Reserve Act in 1913.
    This act led to the establishment of the Federal
    Reserve System in 1914.

6
The Fed
  • As the nations Monetary Authority, the Fed
  • attempts to ensure that growth in money and
    credit over the long run is sufficient to
    encourage growth in the economy in line with its
    potential and with reasonable price stability

7
The Fed
  • Seeks to adapt its policies to combat
    deflationary or inflationary pressures as they
    may arise
  • has the responsibility for utilizing the policy
    instruments available to it in an attempt to
    prevent national liquidity crises and financial
    panics.

8
The Structure of the Fed
  • The Board of Governors
  • seven governors, 14-year terms
  • Federal Open Market Committee
  • twelve members
  • The Federal Advisory Committee
  • twelve members advising the BOG
  • Federal Reserve Banks
  • twelve district banks in the U.S.
  • Member Banks
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