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Money & Monetary Policy Part II: Definitions of Money AP Macroeconomics

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Presentation on theme: "Money & Monetary Policy Part II: Definitions of Money AP Macroeconomics"— Presentation transcript:

1 Money & Monetary Policy Part II: Definitions of Money AP Macroeconomics http://en.wikipedia.org/wiki/Money_(Pink_Floyd_songhttp://en.wikipedia.org/wiki/Money_(Pink_Floyd_song)

2 Where we came from…  In this Unit, we began by learning about certain aspects of money – the properties and functions of money, to be exact. http://www.writemoneyinc.com/

3 Properties of money Portability – you can take it easily from place to place Uniformity – it is consistent Durability – will (hopefully) last Stability in value – value holds fairly stable over time (i.e. doesn’t change constantly) Stability in acceptability – people and economies accept its value fairly consistently over time

4 Money has a few functions… Medium-of-exchange function Store-of-value function Unit-of-account function http://filipspagnoli.wordpress.com/2008/09/01/human-rights-quote-87-trade-liberalization-and- poverty/

5 Let’s talk about the definitions of money... Monetary aggregates: overall measures of the money supply, which differ in how strictly money is defined.  Two types of money aggregates: M1 M2 Monetary Aggregates M1M2

6 Let’s talk about the definitions of money... A little something called “M1” – This is the narrowest definition of money. M1 includes currency, traveler’s checks, and checkable deposits. How does each of these fulfill the “medium-of-exchange” function? http://www.salary-money.com/

7 Let’s talk about the definitions of money... M2 – this includes M1 and savings deposits, small time deposits (e.g. 401K), money market mutual funds, and other deposits. Many items in M2 are constrained in their ability to serve as a medium of exchange.  For example, time deposits may require a significant penalty if withdrawals are made before maturity. http://www.retirementfinances.com/retirement-investing/retirement-mutual-funds

8 Why is the Fed interested in knowing the size and rate of growth of the $ supply? The size of the money supply and the rate at which it is growing can have a significant impact on the economic well being of the country! http://politicalhumor.about.com/od/politicalcartoons/ig/Political-Cartoons/Waiting-for-Economic-Growth.htm

9 Next steps… Either alone or with a partner, create a graphic organizer that illustrates what is included in/excluded from M1 and M2. Explore and view current data on M1 and M2 through the Federal Reserve website:  http://www.federalreserve.gov/ http://www.federalreserve.gov/

10 And now… Some resources: http://www.reffonomics.com/ Morton workbook Activity 35

11 Works Cited Economics of Seinfeld. http://yadayadayadaecon.com/clip/46/ http://yadayadayadaecon.com/clip/46/ Krugman, Paul, and Robin Wells. Krugman’s Economics for AP. New York: Worth Publishers. Morton, John S. and Rae Jean B. Goodman. Advanced Placement Economics: Teacher Resource Manual. 3 rd ed. New York: National Council on Economic Education, 2003. Print. Reffonomics. www.reffonomics.com.www.reffonomics.com


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