Bell Ringer Who controls the regulation of our money supply?

Agenda CNN10 Notes – Money, Banking, Saving, and Investing part 1 Crash course – Monetary policy and the Federal Reserve No Homework

Money, Banking, Saving and investing

What are the functions and characteristics of Money?

Three Basic Functions 1. money is a medium, or means of exchange. It enables us to trade with other people. 2. Money is a standard of value. 3. Money is a store of value. It holds its value over time. Its purchasing power will change over time, but not render it useless.

Six characteristics of money 1. Acceptability – buyers and seller must be willing to accept it. 2. Scarcity – there should not be an abundance of it like sand but it should not be completely rare either. 3. Portability – Able to carry it 4. Durability – Able to withstand physical wear and tear over time. 5. Divisibility – Must be able to be divided into smaller amounts 6. Uniformity – must look the same

THE VALUE OF MONEY CAN CHANGE OVER TIME, OF COURSE THE VALUE OF MONEY CAN CHANGE OVER TIME, OF COURSE. INFLATION CAN MAKE MONEY LESS VALUABLE OVER TIME. ITS NOMINAL VALUE CAN DIFFER FROM ITS REAL VALUE. THAT’S WHY ECONOMISTS SOMETIMES FOCUS ON THE PURCHASING POWER OF MONEY

Purchasing power Defined as the value of a unit of money in terms of what it can buy. In other words, its value is measured in terms of what goods and services it can buy. For example, one hundred dollars may not be able to purchase as many goods or services ten years from now as it can now. In that instance we would say that purchasing power has declined. Historically, the purchasing power of the dollar has dropped more than risen

The Money Supply Purchasing power and several related things are dependent upon the money supply. The money supply is the quantity of money available in the economy.

DIFFERENT TYPES Of MONEY SUPPLY: M1 VS. M2 M1 refers to the money circulating in the economy that includes cash and other assets that can be easily converted to cash. Currency (or cash) refers to the paper bills and coins in circulation. Deposits in bank checking accounts are an example of non-cash assets that can be easily converted into cash; they are sometimes called liquid assets.

Liquidity Liquidity is the ease with which an asset can be converted into the economy’s medium of exchange.

DIFFERENT TYPES Of MONEY SUPPLY: M1 VS. M2 M2 is a broader measure of the money supply. M2 consist of M1 plus money saved in various kinds of less liquid accounts or funds. i.e. Savings accounts, money market accounts, certificate of deposit (CDS) – Less liquid accounts.

The Federal reserve system The Federal Reserve System is the government institution given responsibility for managing the money supply of the United States. This institution has other roles too. It was established by an act of Congress in 1913.

Structure of the federal reserve system

The federal reserve system THE FEDERAL RESERVE (OR THE FED) IS RUN BY A BOARD OF GOVERNORS, WHICH HAS SEVEN MEMBERS APPOINTED BY THE PRESIDENT AND CONFIRMED BY THE SENATE. ONE OF THESE SEVEN MEMBERS SERVES AS THE CHAIRMAN. THE CURRENT CHAIR IS JANET YELLEN.

The federal Reserve system The governors serve staggered 14-year terms. Each position comes vacant every two years. The President appoints a member as chairman to serve a four year term. The Senate must confirm this appointment also.

HOW DOES THE FED ALTER THE MONEY SUPPLY? ONE WAY CONCERNS GOVT. BONDS. To increase the money supply, the Fed buys government bonds from the public. To decrease the money supply, the fed sells government bonds to the public.

NOTE THAT THE FED’S INFLUENCE IS INDIRECT AND DIFFICULT TO WIELD EXACTLY The Fed can’t control how much individual banks lend out even if it can enact policies that will make banks more or less likely to lend. Therefore, the Fed’s control over the economy is limited and imperfect.

Federal Reserve System Another way the Fed can influence the money supply is through reserve requirements. Reserve requirements have to do with the minimum amount of reserves that banks must hold against deposits. The higher the reserve requirement, the less money a bank can lend out. Increasing the reserve requirement decreases the money supply. Decreasing the reserve requirement increases the money supply.

THE DISCOUNT RATE The Fed can also change the discount rate. This is the discount rate that the Fed charges banks for loans. Increasing the discount rate decreases the money supply. Decreasing the discount rate increases the money supply.

Crash Course https://www.youtube.com/watch?v=1dq7mMort9o&list=PL8dPuuaLjXtPNZwz5_o_5uirJ8 gQXnhEO&index=10