2. MONEY AND BANKING Pertemuan 10 Matakuliah: J0594-Teori Ekonomi Tahun: 2009

3. Bina Nusantara University 3 The Functions of Money –Medium of Exchange –Unit of Account –Store of Value

4. Bina Nusantara University 4 Components of the Money Supply Currency –Coins and Paper Money –Token Money –Federal Reserve Notes Checkable Deposits –Commercial Banks –Thrift Institutions A Qualification –Government, Federal Reserve, and Banks Excluded from M1 a. Money Definition M1

5. Bina Nusantara University 5 Components of the Money Supply –Near-Monies –Savings Deposits Including Money Market Deposit Accounts (MMDA) –Small Time Deposits –Money Market Mutual Funds (MMMF) b. Money Definition M2

6. Bina Nusantara University 6 Money Defined M1M1M2M2 54% 46% M1M1 20% Savings Deposits Including Money Market Deposit Accounts (MMDA) Small Time Deposits Money Market Mutual Funds Held By Individuals (MMMF) Currency Checkable Deposits 15% 11% 54% $1,375 Billion $6,758 Billion February 2006 Totals + + + + +

7. Bina Nusantara University 7 Money Definition MZM –Money Zero Maturity –Immediately Available –From M2 Subtract Small Time Deposits –Add Back Money Market Mutual Funds Owned by Businesses (MMMF) –Slightly Larger than M2 –February 2005 M2 was $6,758 Billion and MZM was $6,934 Billion

8. Bina Nusantara University 8 Money Supply Are Credit Cards Money ? What “Backs” the Money Supply? Stable Value of Money Money as Debt –Acceptability –Legal Tender –Relative Scarcity

9. Bina Nusantara University 9 Money Supply Money and Prices –Purchasing Power of the Dollar $V = 1/P –Inflation and Acceptability Stabilizing Money’s Purchasing Power –Intelligent Management of the Money Supply – Monetary Policy –Appropriate Fiscal Policy

10. Bina Nusantara University 10 Federal Reserve System Commercial Banks Thrift Institutions (Savings and Loan Associations, Mutual Savings Banks, Credit Unions) The Public (Households and Businesses) 12 Federal Reserve Banks Board of Governors Federal Open Market Committee Framework of the Federal Reserve System and the Relationship to the Public

11. Bina Nusantara University 11 Federal Reserve System Issuing Currency Setting Reserve Requirements and Holding Reserves Lending Money to Banks and Thrifts –Discount Rate Check Collection Fiscal Agent for U.S. Supervising Banks Controlling the Money Supply Fed Functions and the Money Supply

12. Bina Nusantara University 12 Federal Reserve System Private and Public Control Central Bank Quasi-Public Banks Banker’s Banks Commercial Banks and Thrifts The 12 Federal Reserve Banks

13. Bina Nusantara University 13 Federal Reserve System The 12 Federal Reserve Banks