2. 1

3. 2 Barter Commodity money

4. 3 Money accepted by law THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE

5. 4 Federal Reserve Bank of Richmond Secretary of the Treasury Treasurer of the United States Number refers to 5 th district; also corresponds to the letter E Have you ever stopped to examine the features of a dollar bill?

6. 5 The Great Seal of the United States the pyramid – a symbol of material strength and endurance the American bald eagle

7. 6 “ANNUIT COEPTIS” - He has favored our undertakings What does the eye inside the triangle represent? “NOVUS ORDO SECLORUM” A New Order of the Ages Why is the pyramid unfinished?

8. 7 the former 13 colonies The Executive Branch The Legislative Branch The Judiciary Branch PEACE and WAR Out of Many, ONE

9. 8 Medium of exchange Store of value Unit of account Liquidity property of money

10. 9 M1 : transactions money M2 : broad money or near monies M3 : large-denomination money

11. 10 M1=currency in circulation +demand deposits +travelers’ checks +other checkable deposits Transactions money

12. 11 Near Monies M2=M1 +savings accounts +time deposits (< $100,000) +money market accounts +repurchase agreements (<$100,000)

13. 12 M3=M2 +time deposits (>$100,000) +repurchase agreements (>$100,100) +Eurodollars

14. 13 Commercial banks Savings and loan associations Life insurance companies Pension funds

15. 14 Fractional reserve banking system Reserves Legal reserve requirement Excess reserves Loans

16. 15 Illustration of money creation Assume 20% legal reserve requirement Suppose Nina deposits $1,000 in her checking account at Citibank. T-account of Citibank: ______Assets________________Liabilities____________ Reserves $200 Demand deposits $1,000 Loans 800

17. 16 Kevin borrows $800 from Citibank, and buys a computer at CompUSA. CompUSA deposits Kevin’s check at Fleet Bank. Fleet Bank’s T-account: _____Assets________________Liabilities_____________ Reserves $160 Demand Deposits $800 Loans 640

18. 17 Vivian borrows $640 from Fleet Bank and buys a new TV set at Sears department store. Sears deposits Vivian’s check at Bank of New York. T-account of Bank of New York: ______Assets____________________Liabilities_______ Reserves $128 Demand deposits $640 Loans 512

19. 18 Total demand deposits after lending and re-lending by banks Banks Demand Deposits Citibank $1,000 Fleet 800 Bank of New York 640  + other banks + additional deposits ___________ = $ 5,000 Total

20. 19 Money multiplier (m) = 1 / required reserve ratio = 1 /.20 = 5 Total demand deposits (M) = m x initial deposit $5,000 = 5 x $1,000