Money Definition Uses Medium of exchange Unit of Account (“numeràire”) Store of value Measuring money (M1, M2, …)

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Presentation transcript:

Money Definition Uses Medium of exchange Unit of Account (“numeràire”) Store of value Measuring money (M1, M2, …)

Financial intermediaries Firms that manage the flow of financial funds from households and firms to other households and firms. Commercial banks S&L’s Savings Banks and Credit Unions Money Market Mutual Funds

Money and Banking Liabilities + Net worth = Assets (deposits + owner’s equity = loans made) deposits = reserves + loans made reserves = vault cash + FRB account

Economic functions of financial intermediaries Create ‘liquidity’ Minimize the ‘cost of obtaining funds’ Minimize the ‘cost of lending funds’ Pooling risks in order to maximize profits

Regulation Deposit insurance FDIC, BIF, SAIF Balance sheet rules capital requirements reserve requirements deposit rules lending rules

Money “creation” The deposit-loan-reserve chain.

Short term AD - AS efffects Shifts AD right or left

Long term AD - AS effects Shift of the SAS right of left

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