radiation.html

What is Money? 1) medium of exchange 2) unit of accounting 3) store of value

What is Money? 1) commodity money 2) fiat money Has value in exchange Has value as a commodity Has value in exchange ONLY Has NO value as a commodity

What is Money? 1) medium of exchange 2) unit of accounting 3) store of value

Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, 2009 Annual Report, p. 3

I believe that during the last financial crises, macroeconomists (and I include myself among them) failed the country, and indeed the world. In September 2008, central bankers were in desperate need of a playbook that offered a systematic plan of attack to deal with fast-evolving circumstances. Macroeconomics should have been able to provide that playbook. It could not.

Of course, from a longer view, macroeconomists let policymakers down much earlier, because they did not provide policymakers with rules to avoid the circumstances that led to the global financial meltdown. FASCISM!!!!

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. (Wikipedia)

The term monetary policy refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit as a means of helping to promote national economic goals. (Federal Reserve)

Edmond S. Phelps, Nobel Laureate in Economics 2006 The upshot of my work is that the function of the Central Bank is to manage expectations of inflation. That’s what the whole game is about. I think that basic message is widely know in the Central Banking fraternity.

Expansionary (loose) Increases the supply of money Used to close a contractionary GDP gap to boost the economy out of a recession Contractionary (tight) Decreases the supply of money Used to close an expansionary GDP gap to stop the economy from “overheating”

Expansionary (loose) Monetary Policy “quantitative easing”

Contractionary (tight) Monetary Policy

Expansionary Monetary Policy

M1 money = Currency Coins Checking accounts M2 money = M1 Savings accounts Small time deposits M3 money = M2 Large time deposits Money market acc. Govt. securities L

Expansionary Monetary Policy

DepositsReq’d Reserve Ratio Required Reserves Excess Reserves Loans $1,00020%$200$800$0

DepositsReq’d Reserve Ratio Required Reserves Excess Reserves Loans $1,00020%$200$0$800

DepositsReq’d Reserve Ratio Required Reserves Excess Reserves Loans $1,00020%$200$0$800 $1,800

DepositsReq’d Reserve Ratio Required Reserves Excess Reserves Loans $1,00020%$200$0$800 $1,80020%$160$640$800

DepositsReq’d Reserve Ratio Required Reserves Excess Reserves Loans $1,00020%$200$0$800 $1,80020%$160$0$1,440

DepositsReq’d Reserve Ratio Required Reserves Excess Reserves Loans $1,00020%$200$0$800 $1,80020%$160$0$1,440 $2,240

DepositsReq’d Reserve Ratio Required Reserves Excess Reserves Loans $1,00020%$200$0$800 $1,80020%$160$0$1,440 $2,24020%$128$512$1,440

DepositsReq’d Reserve Ratio Required Reserves Excess Reserves Loans $1,00020%$200$0$800 $1,80020%$160$0$1,440 $2,24020%$128$0$1,952 $2752

DepositsReq’d Reserve Ratio Required Reserves Excess Reserves Loans $1,00020%$200$0$800 $1,80020%$360$0$1,440 $2,24020%$488$0$1,952 $2,75220%$590$0$2,362

DepositsReq’d Reserve Ratio Required Reserves Excess Reserves Loans $2,75220%$590$0$2,362

DepositsReq’d Reserve Ratio Required Reserves Excess Reserves Loans $2,75220%$590$0$2,362 $1,000

DepositsReq’d Reserve Ratio Required Reserves Excess Reserves Loans $2,75220%$590$0$2,362 $1,000$3,362 $3,752