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Presentation on theme: "radiation.html."— Presentation transcript:

1 http://economistsview.typepad.com/economistsview/2011/03/fast-facts-about- radiation.html

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

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4 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

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

6 http://www.frbsf.org/education/fedville/currency7.cfm http://www.frbsf.org/publications/federalreserve/monetary/tools.html http://economistsview.typepad.com/economistsview/2010/06/rudebusch-the-feds-exit-strategy-for-monetary-policy.html http://www.youtube.com/watch?v=pVmxQsvj6lo&feature=related http://www.federalreserve.gov/monetarypolicy/mpr_default.htm

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

9 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.

10 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!!!!

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12 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)

13 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) http://www.federalreserve.gov/generalinfo/faq/faqmpo.htm

14 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. http://nobelprize.org/mediaplayer/index.php?id=148

15 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”

16 Expansionary (loose) Monetary Policy “quantitative easing”

17 Contractionary (tight) Monetary Policy

18 Expansionary Monetary Policy

19 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

20 Expansionary Monetary Policy

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

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

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

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

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

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

27 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

28 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

29 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

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

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

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

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