1. BU204 - Macroeconomics Unit 8 Seminar

2. Key Term Assignment Fiat money M1 M2 FED Bank Reserves Federal funds rate FED discount rate Monetary policy

3. Unit 8 Key Concepts Chapter 14: –Definition of Money –Roles of Money –Types of Money –Monetary Role of Banks Bank reserves, reserve ratio, regulation –Creation of Money Make loans with excess reserves Money multiplier –Federal Reserve Tools of the Federal Reserve (Reserve Requirements, Discount Rate, Open Market Operations).

4. Chapter 15: –Relationship between money and interest rates –Monetary Policy and Aggregate Demand Expansionary Policy –Increase money supply, reduce interest rates, increase AD Contractionary Policy –Decrease money supply, increase interest rates, decrease AD –Money and Prices in the Long-Run

5. Final Assignment 4. The table below shows the United States components of M1 and M2 in billions of dollars for the month of December in the years 1998 to 2007 as published in the 2008 Economic report of the President. a. Complete the table by calculating M1 (5 points), b. Calculating M2 (5 points), c. Calculating currency in circulation as a percentage of M1 (5 points), and d. Calculating currency in circulation as a percentage of M2 (5 points).

6. 5. Considering the flow of money throughout a country’s economy and the importance of the proper level of money supply, answer the following questions. a. Discuss how money is created within the banking system (15 points) b. Discuss how in the United States, the Federal Reserve uses monetary policy to control the money supply. (15 points)