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| QUICK REVIEW 13-1 |
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- Money serves as a medium of exchange
a unit of
account
and a store of value.
- The narrow M1 definition of money includes
currency held by the public plus checkable deposits in commercial banks and thrift
institutions.
- Thrift institutions as well as commercial banks
offer accounts on which checks can be written.
- The M2 definitionof money includes M1 plus
noncheckable savings deposits
money market deposit accounts
small (less than $100
000)
time deposits
and money market mutual fund balances; M3 consists of M2 plus large time
deposits (more than $100
000).
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| QUICK REVIEW 13-2 |
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- In the United States
all money is essentially
the debts of government
commercial banks
and thrift institutions.
- These debts efficiently perform the functions of
money as long as their value
or purchasing power
is relatively stable.
- The value of money is rooted not in carefully
defined quantities of precious metals but
rather
in the amount of goods
services
and
resources that money will purchase.
- Government's responsibility in stabilizing the
value of the monetary unit involves (1) the application of appropriate fiscal policies and
(2) effective control over the supply of money.
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| QUICK REVIEW 13-3 |
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- People hold money for transaction and asset
purposes.
- The total demand for money is the sum of the
transactions and asset demands; it is graphed as an inverse relationship (downsloping
line) between the interest rate and the quantity of money demanded.
- The equilibrium interest rate is determined by
money demand and supply; it occurs where people are willing to hold the exact amount of
money being supplied by the monetary authorities.
- Bond prices and interest rates are inversely
related.
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| QUICK REVIEW 13-4 |
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- The Federal Reserve System consists of the Board
of Governors
12 Federal Reserve Banks
commercial banks
and thrift institutions.
- The 12 Federal Reserve Banks are publicly
controlled central banks which deal with banks and thrifts rather than the public.
- The Federal Reserve's major role is to regulate
the supply of money in the economy.
- Three recent developments in banking are the
relative decline in traditional banking
the internationalization of banking
and the
emergence of E-cash and smart cards.
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