Copyright McGraw-Hill, Inc Money & Banking FUNCTIONS OF MONEY SUPPLY OF MONEY DEMAND FOR MONEY MONEY MARKET U.S. FINANCIAL SYSTEM CHAPTER THIRTEEN
Copyright McGraw-Hill, Inc Functions of Money Medium of Exchange
Copyright McGraw-Hill, Inc Functions of Money Medium of Exchange Unit of Account Medium of Exchange Unit of Account
Copyright McGraw-Hill, Inc Functions of Money Medium of Exchange Unit of Account Store of Value Medium of Exchange Unit of Account Store of Value
Copyright McGraw-Hill, Inc Money Definition
Copyright McGraw-Hill, Inc Money Definition Currency Token Money Intrinsic Value Currency Token Money Intrinsic Value
Copyright McGraw-Hill, Inc Money Definition Currency Token Money Intrinsic Value Currency Token Money Intrinsic Value Federal Reserve Notes
Copyright McGraw-Hill, Inc Money Definition Currency Token Money Intrinsic Value Currency Token Money Intrinsic Value Checkable Deposits Commercial Banks Thrift Institutions Savings & Loan Associations Checkable Deposits Commercial Banks Thrift Institutions Savings & Loan Associations
Copyright McGraw-Hill, Inc Money Definition Currency Token Money Intrinsic Value Checkable Deposits Commercial Banks Thrift Institutions Savings & Loan Associations Currency Token Money Intrinsic Value Checkable Deposits Commercial Banks Thrift Institutions Savings & Loan Associations Mutual Savings Banks
Copyright McGraw-Hill, Inc Money Definition Currency Token Money Intrinsic Value Checkable Deposits Commercial Banks Thrift Institutions Savings & Loan Associations Currency Token Money Intrinsic Value Checkable Deposits Commercial Banks Thrift Institutions Savings & Loan Associations Mutual Savings Banks Credit Unions
Copyright McGraw-Hill, Inc Money Definition = = Plus...
Copyright McGraw-Hill, Inc Money Definition Near-monies = = Plus...
Copyright McGraw-Hill, Inc Money Definition Near-monies Noncheckable Savings Accounts Near-monies Noncheckable Savings Accounts = = Plus...
Copyright McGraw-Hill, Inc Money Definition Near-monies Noncheckable Savings Accounts Money Market Deposit Accounts Near-monies Noncheckable Savings Accounts Money Market Deposit Accounts = = Plus...
Copyright McGraw-Hill, Inc Money Definition Near-monies Noncheckable Savings Accounts Money Market Deposit Accounts Time Deposits Near-monies Noncheckable Savings Accounts Money Market Deposit Accounts Time Deposits = = Plus...
Copyright McGraw-Hill, Inc Money Definition Near-monies Noncheckable Savings Accounts Money Market Deposit Accounts Time Deposits Money Market Mutual Funds Near-monies Noncheckable Savings Accounts Money Market Deposit Accounts Time Deposits Money Market Mutual Funds = = Plus...
Copyright McGraw-Hill, Inc Money Definition Large Time Deposits = = Plus... Specifically in
Copyright McGraw-Hill, Inc The Supply of Money Currency (coins & paper money) plus Checkable deposits 1997 Data (billions of dollars)
Copyright McGraw-Hill, Inc The Supply of Money Currency (coins & paper money) plus Checkable deposits M1 equals M1 M1 $ Data (billions of dollars)
Copyright McGraw-Hill, Inc The Supply of Money Currency (coins & paper money) plus Checkable deposits M1 equals M1 plus Noncheckable savings deposits, including MMDA’s plus Small time deposits plus Money market mutual fund balances (MMMF’s) M1 $ Data (billions of dollars)
Copyright McGraw-Hill, Inc The Supply of Money Currency (coins & paper money) plus Checkable deposits M1 equals M1 plus Noncheckable savings deposits, including MMDA’s plus Small time deposits plus Money market mutual fund balances (MMMF’s) M2 equals M2 M1 M2 $ Data (billions of dollars) $3964
Copyright McGraw-Hill, Inc The Supply of Money Currency (coins & paper money) plus Checkable deposits M1 equals M1 plus Noncheckable savings deposits, including MMDA’s plus Small time deposits plus Money market mutual fund balances (MMMF’s) M2 equals M2 plus Large time deposits M1 M2 $ Data (billions of dollars) $3964
Copyright McGraw-Hill, Inc The Supply of Money Currency (coins & paper money) plus Checkable deposits M1 equals M1 plus Noncheckable savings deposits, including MMDA’s plus Small time deposits plus Money market mutual fund balances (MMMF’s) M2 equals M2 plus Large time deposits M3 equals M3 M1 M2 M3 $ Data (billions of dollars) $3964 $5205
Copyright McGraw-Hill, Inc What about credit cards?
Copyright McGraw-Hill, Inc What Backs the Money Supply?
Copyright McGraw-Hill, Inc What Backs the Money Supply? Money as Debt
Copyright McGraw-Hill, Inc What Backs the Money Supply? Money as Debt Value of Money Money as Debt Value of Money
Copyright McGraw-Hill, Inc What Backs the Money Supply? Money as Debt Value of Money Acceptability Money as Debt Value of Money Acceptability
Copyright McGraw-Hill, Inc What Backs the Money Supply? Money as Debt Value of Money Acceptability Legal Tender Money as Debt Value of Money Acceptability Legal Tender
Copyright McGraw-Hill, Inc What Backs the Money Supply? Money as Debt Value of Money Acceptability Legal Tender Fiat Money Money as Debt Value of Money Acceptability Legal Tender Fiat Money
Copyright McGraw-Hill, Inc What Backs the Money Supply? Money as Debt Value of Money Acceptability Legal Tender Relative Scarcity Money as Debt Value of Money Acceptability Legal Tender Relative Scarcity
Copyright McGraw-Hill, Inc What Backs the Money Supply? Money as Debt Value of Money Acceptability Legal Tender Relative Scarcity Money and Prices Money as Debt Value of Money Acceptability Legal Tender Relative Scarcity Money and Prices
Copyright McGraw-Hill, Inc What Backs the Money Supply? Money as Debt Value of Money Acceptability Legal Tender Relative Scarcity Money and Prices Value of the Dollar Money as Debt Value of Money Acceptability Legal Tender Relative Scarcity Money and Prices Value of the Dollar
Copyright McGraw-Hill, Inc What Backs the Money Supply? Money as Debt Value of Money Acceptability Legal Tender Relative Scarcity Money and Prices Value of the Dollar Money as Debt Value of Money Acceptability Legal Tender Relative Scarcity Money and Prices Value of the Dollar NOTES: Reciprocal relationship between the price level and the value of the dollar. D = 1 P
Copyright McGraw-Hill, Inc What Backs the Money Supply? Money as Debt Value of Money Acceptability Legal Tender Relative Scarcity Money and Prices Value of the Dollar Inflation and Acceptability Money as Debt Value of Money Acceptability Legal Tender Relative Scarcity Money and Prices Value of the Dollar Inflation and Acceptability
Copyright McGraw-Hill, Inc Maintaining Money’s Value What backs the money supply?
Copyright McGraw-Hill, Inc Maintaining Money’s Value What backs the money supply? Stable Value! through....
Copyright McGraw-Hill, Inc Maintaining Money’s Value What backs the money supply? Stable Value! through.... Appropriate fiscal policy
Copyright McGraw-Hill, Inc Maintaining Money’s Value What backs the money supply? Stable Value! through.... Appropriate fiscal policy Intelligent management of the money supply Appropriate fiscal policy Intelligent management of the money supply
Copyright McGraw-Hill, Inc The Demand For Money
Copyright McGraw-Hill, Inc The Demand For Money Transactions Demand, D 1 varies directly with nominal GDP
Copyright McGraw-Hill, Inc The Demand For Money Transactions Demand, D 1 varies directly with nominal GDP Asset Demand, D 2 varies inversely with the interest rate illustrated....
Transactions Demand, D t + Rate of interest, i (percent) Amount of money demanded (billions of dollars) DtDt The Demand For Money Copyright McGraw-Hill, Inc. 1999
Transactions Demand, D t Asset Demand, D a += Rate of interest, i (percent) Amount of money demanded (billions of dollars) Amount of money demanded (billions of dollars) DtDt DaDa The Demand For Money Copyright McGraw-Hill, Inc. 1999
Transactions Demand, D t Asset Demand, D a Total demand for money, D m += Rate of interest, i (percent) Amount of money demanded (billions of dollars) Amount of money demanded (billions of dollars) Amount of money demanded (billions of dollars) DtDt DaDa DmDm The Demand For Money Copyright McGraw-Hill, Inc. 1999
Transactions Demand, D t Asset Demand, D a Total demand for money, D m += Rate of interest, i (percent) Amount of money demanded (billions of dollars) Amount of money demanded (billions of dollars) Amount of money demanded (billions of dollars) DtDt DaDa DmDm ADD THE MONEY SUPPLY TO FIND THE EQUILIBRIUM RATE OF INTEREST ADD THE MONEY SUPPLY TO FIND THE EQUILIBRIUM RATE OF INTEREST The Demand For Money Copyright McGraw-Hill, Inc. 1999
Transactions Demand, D t Asset Demand, D a Total demand for money, D m += Rate of interest, i (percent) Amount of money demanded (billions of dollars) Amount of money demanded (billions of dollars) Amount of money demanded (billions of dollars) DtDt DaDa SmSm DmDm Equilibrium Interest Rate ieie The Demand For Money Copyright McGraw-Hill, Inc. 1999
The Money Market Rate of interest, i (percent) Amount of money demanded (billions of dollars) SmSm DmDm ieie Suppose the money supply is decreased from $200 billion, S m, to $150 billion S m
Copyright McGraw-Hill, Inc Rate of interest, i (percent) Amount of money demanded (billions of dollars) DmDm ieie SmSm A temporary shortage of money will require the sale of some assets to meet the need. S m1 The Money Market
Copyright McGraw-Hill, Inc Rate of interest, i (percent) Amount of money demanded (billions of dollars) DmDm ieie SmSm A temporary shortage of money will require the sale of some assets to meet the need. S m1 Bonds are assumed as a typical asset with lower prices associated with higher interest rates Bonds are assumed as a typical asset with lower prices associated with higher interest rates The Money Market
Copyright McGraw-Hill, Inc Rate of interest, i (percent) Amount of money demanded (billions of dollars) DmDm ieieieie After adjustments to asset holdings, a new equilibrium will be seen at a higher level of interest. S m The Money Market
Copyright McGraw-Hill, Inc Rate of interest, i (percent) Amount of money demanded (billions of dollars) DmDm ieie SmSm Suppose the money supply is increased from $200 billion, S m, to $250 billion S m2. The Money Market
Copyright McGraw-Hill, Inc Rate of interest, i (percent) Amount of money demanded (billions of dollars) DmDm ieie SmSm S m A temporary surplus of money will require the purchase of some assets to meet the de- sired level of liquidity. The Money Market
Copyright McGraw-Hill, Inc Rate of interest, i (percent) Amount of money demanded (billions of dollars) DmDm ieie S m After adjustments to asset holdings, a new equilibrium will be seen at a lower level of interest. The Money Market
Copyright McGraw-Hill, Inc The United States Financial System
Copyright McGraw-Hill, Inc The Federal Reserve System The United States Financial System
Copyright McGraw-Hill, Inc The Federal Reserve System Board of Governors The United States Financial System
Copyright McGraw-Hill, Inc The Federal Reserve System Board of Governors Assistance & Advice Board of Governors Assistance & Advice The United States Financial System
Copyright McGraw-Hill, Inc The Federal Reserve System Board of Governors Assistance & Advice Federal Open Market Committee Board of Governors Assistance & Advice Federal Open Market Committee The United States Financial System
Copyright McGraw-Hill, Inc The Federal Reserve System Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils The United States Financial System
Copyright McGraw-Hill, Inc The Federal Reserve System Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils The Twelve Federal Reserve Banks Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils The Twelve Federal Reserve Banks The United States Financial System
Copyright McGraw-Hill, Inc The Federal Reserve System Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils The Twelve Federal Reserve Banks Central Bank Role Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils The Twelve Federal Reserve Banks Central Bank Role The United States Financial System
Copyright McGraw-Hill, Inc The Federal Reserve System Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils The Twelve Federal Reserve Banks Central Bank Role Quasipublic Banks Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils The Twelve Federal Reserve Banks Central Bank Role Quasipublic Banks The United States Financial System
Copyright McGraw-Hill, Inc The Federal Reserve System Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils The Twelve Federal Reserve Banks Central Bank Role Quasipublic Banks Banker’s Banks Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils The Twelve Federal Reserve Banks Central Bank Role Quasipublic Banks Banker’s Banks The United States Financial System
Copyright McGraw-Hill, Inc The Federal Reserve System Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils The Twelve Federal Reserve Banks Central Bank Role Quasipublic Banks Banker’s Banks Commercial Banks & Thrifts Board of Governors Assistance & Advice Federal Open Market Committee Three Advisory Councils The Twelve Federal Reserve Banks Central Bank Role Quasipublic Banks Banker’s Banks Commercial Banks & Thrifts The United States Financial System
Copyright McGraw-Hill, Inc FED Functions and the Money Supply
Copyright McGraw-Hill, Inc FED Functions and the Money Supply Issuing Currency
Copyright McGraw-Hill, Inc FED Functions and the Money Supply Issuing Currency Setting Reserve Requirements & Holds Reserves Issuing Currency Setting Reserve Requirements & Holds Reserves
Copyright McGraw-Hill, Inc FED Functions and the Money Supply Issuing Currency Setting Reserve Requirements & Holds Reserves Lending Money to Banks & Thrifts Issuing Currency Setting Reserve Requirements & Holds Reserves Lending Money to Banks & Thrifts
Copyright McGraw-Hill, Inc FED Functions and the Money Supply Issuing Currency Setting Reserve Requirements & Holds Reserves Lending Money to Banks & Thrifts Check Collection Issuing Currency Setting Reserve Requirements & Holds Reserves Lending Money to Banks & Thrifts Check Collection
Copyright McGraw-Hill, Inc FED Functions and the Money Supply Issuing Currency Setting Reserve Requirements & Holds Reserves Lending Money to Banks & Thrifts Check Collection Fiscal Agents for the Federal Government Issuing Currency Setting Reserve Requirements & Holds Reserves Lending Money to Banks & Thrifts Check Collection Fiscal Agents for the Federal Government
Copyright McGraw-Hill, Inc FED Functions and the Money Supply Issuing Currency Setting Reserve Requirements & Holds Reserves Lending Money to Banks & Thrifts Check Collection Fiscal Agents for the Federal Government Supervision of Member Banks Issuing Currency Setting Reserve Requirements & Holds Reserves Lending Money to Banks & Thrifts Check Collection Fiscal Agents for the Federal Government Supervision of Member Banks
Copyright McGraw-Hill, Inc FED Functions and the Money Supply Issuing Currency Setting Reserve Requirements & Holds Reserves Lending Money to Banks & Thrifts Check Collection Fiscal Agents for the Federal Government Supervision of Member Banks Control of the Money Supply Control of the Money Supply Issuing Currency Setting Reserve Requirements & Holds Reserves Lending Money to Banks & Thrifts Check Collection Fiscal Agents for the Federal Government Supervision of Member Banks Control of the Money Supply Control of the Money Supply
Copyright McGraw-Hill, Inc FED Functions and the Money Supply Issuing Currency Setting Reserve Requirements & Holds Reserves Lending Money to Banks & Thrifts Check Collection Fiscal Agents for the Federal Government Supervision of Member Banks Control of the Money Supply Control of the Money Supply Issuing Currency Setting Reserve Requirements & Holds Reserves Lending Money to Banks & Thrifts Check Collection Fiscal Agents for the Federal Government Supervision of Member Banks Control of the Money Supply Control of the Money Supply NOTES: Federal Reserve Independence from Federal Government Federal Reserve Independence from Federal Government
Copyright McGraw-Hill, Inc Recent Developments Relative Decline of Banks & Thrifts
Copyright McGraw-Hill, Inc Recent Developments Relative Decline of Banks & Thrifts Expansion of Services Relative Decline of Banks & Thrifts Expansion of Services
Copyright McGraw-Hill, Inc Recent Developments Relative Decline of Banks & Thrifts Expansion of Services Mergers Relative Decline of Banks & Thrifts Expansion of Services Mergers
Copyright McGraw-Hill, Inc Recent Developments Relative Decline of Banks & Thrifts Expansion of Services Mergers Regulatory Reform Relative Decline of Banks & Thrifts Expansion of Services Mergers Regulatory Reform
Copyright McGraw-Hill, Inc Recent Developments Relative Decline of Banks & Thrifts Expansion of Services Mergers Regulatory Reform Market Globalization Relative Decline of Banks & Thrifts Expansion of Services Mergers Regulatory Reform Market Globalization
Copyright McGraw-Hill, Inc Recent Developments Relative Decline of Banks & Thrifts Expansion of Services Mergers Regulatory Reform Market Globalization Electronic Money Relative Decline of Banks & Thrifts Expansion of Services Mergers Regulatory Reform Market Globalization Electronic Money
Copyright McGraw-Hill, Inc Recent Developments Relative Decline of Banks & Thrifts Expansion of Services Mergers Regulatory Reform Market Globalization Electronic Money E-Cash Relative Decline of Banks & Thrifts Expansion of Services Mergers Regulatory Reform Market Globalization Electronic Money E-Cash
Copyright McGraw-Hill, Inc Recent Developments Relative Decline of Banks & Thrifts Expansion of Services Mergers Regulatory Reform Market Globalization Electronic Money E-Cash Smart Cards Relative Decline of Banks & Thrifts Expansion of Services Mergers Regulatory Reform Market Globalization Electronic Money E-Cash Smart Cards
Copyright McGraw-Hill, Inc Recent Developments Relative Decline of Banks & Thrifts Expansion of Services Mergers Regulatory Reform Market Globalization Electronic Money E-Cash Smart Cards Relative Decline of Banks & Thrifts Expansion of Services Mergers Regulatory Reform Market Globalization Electronic Money E-Cash Smart Cards Questions and Discussion Questions and Discussion
u medium of exchange u unit of account u store of value u M1, M2, M3 u token money u intrinsic value u Federal Reserve Notes u checkable deposits u thrift (savings) institutions u savings & loan associations u mutual savings banks u credit unions u near-monies u noncheckable deposits u money market deposit account u time deposits u money market mutual fund u legal tender u fiat money u transactions demand u asset demand u total demand for money u money market u Federal Reserve System u Board of Governors u Federal Open Market Committee u Advisory Councils u Federal Reserve Banks u commercial banks u E-cash u smart cards Copyright McGraw-Hill, Inc. 1999
How Banks Create Money Chapter 14 Coming up next...