Chapter 13 The Role Of Money In The Macro Ecomony

Topics: Monetary policy, Central bank, Money supply Pages: 27 (1356 words) Published: April 9, 2015
The Role of Money in the Macro
Ecomony

Chapter 13

What is Money?
 The

stock of financial assets that can easily be
used to make market transactions and that
serves as a medium of exchange, a unit of
account, and a store of value.

2

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Measures of the U.S. Money Supply
MEASURE

DESCRIPTION

VALUE (JAN 2008)
SEAS. ADJ. (BIL. $)

Coins held outside the Treasury, the
Federal Reserve banks, and
depository institutions, as well as
paper money—Federal
Reserve notes

758.0

Checkable deposits

Deposits in checking accounts
(demand deposits)

292.5

Travelers’ checks

Checks that can be used as cash
issued by nondepository
institutions such as American
Express

Other checkable deposits

Negotiable orders of withdrawal
(NOWs) and automatic transfer
service (ATS) account balances

C: CURRENCY

M1: C PLUS:

3

Total M1

6.2

307.9
1,364.6

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Measures of U.S. Money Supply
MEASURE

DESCRIPTION

Total M1

VALUE (JAN 2008)
SEAS. ADJ. (BIL. $)
1,364.6

M2: M1 PLUS:

4

Money market mutual fund
shares

Shares of funds that invest in
short-term financial assets and
have
check-writing privileges

1,006.1

Savings accounts

Interest-bearing accounts with
no checking privileges

3,903.2

Small time deposits

Accounts of less than
$100,000, such as certificates
of deposit,
that have fixed maturities and
penalties for early withdrawal

1,224.5

Total M2

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7,498.3

Depository Institutions
 Depository

institutions are institutions that
accept deposits from individuals and
organizations, against which depositors can
write checks on demand for their market
transactions and that use these deposits to
make loans.

5

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Fractional Reserve Banking
 A banking

system in which banks are required
to keep only a fraction of their deposits as
reserves.

6

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Reserve Requirement
 Required

reserves kept in banks’ vaults or as
deposits at the Federal Reserve divided by
demand deposits or the fraction of deposits
banks are required to keep as reserves.

7

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Simple Deposit Multiplier
 The

amount by which the money supply can be
increased in a fractional reserve banking
system, which equals (1/rr), where rr is the
reserve requirement.

8

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Money multiplier
 The

money multiplier,mm—which is usually
smaller than the simple deposit multiplier, d—
reflects individuals’ decisions to hold some of
their assets in cash rather than deposit them in
a checking account and banks’ decisions to
hold excess reserves.

9

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The Central Bank (Federal Reserve)
 The

central bank in the United States that
implements monetary policy and helps regulate
and operate the country’s financial system.

10

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Federal Reserve
 Created

in 1913 to help provide stability to the
country’s financial system
 Implements monetary policy and helps regulate
and operate the country’s financial system
 12 Federal Reserve District Banks in major
cities across the country
 Functions as an independent organization with
government oversight
11

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Federal Open Market Committee
(FOMC)
 The

Federal Reserve body that has the primary
responsibility for conducting monetary policy
 The FOMC has 12...
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