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