1

2

Barter

Commodity money

3

Money accepted by law

THIS NOTE IS LEGAL TENDERFOR ALL DEBTS, PUBLIC AND PRIVATE

4

Federal Reserve Bank of Richmond

Federal Reserve Bank of Richmond

Secretary of the TreasuryTreasurer of the United States

Number refers to 5th district; also corresponds to the letter E

Have you ever stopped to examine

the features of a dollar bill?

5

The Great Seal of the United States

the pyramid – a symbol of material strength and endurance

the American bald eagle

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?

7

the former 13 colonies

the former 13 colonies

The Executive BranchThe Executive Branch

The Legislative BranchThe Legislative Branch

The Judiciary Branch

The Judiciary Branch

PEACE and WAR

Out of Many, ONE

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• Medium of exchange

• Store of value

• Unit of account

Liquidity property of money

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• M1 : transactions money

• M2 : broad money

or near monies

• M3 : large-denomination money

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M1 = currency in circulation+ demand deposits+ travelers’ checks+ other checkable

deposits

Transactions money

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Near Monies

M2 = M1+ savings accounts+ time deposits (< $100,000)+ money market accounts+ repurchase agreements

(<$100,000)

12

M3 = M2+ time deposits

(>$100,000)+ repurchase agreements

(>$100,100)+ Eurodollars

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• Commercial banks

• Savings and loan associations

• Life insurance companies

• Pension funds

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• Fractional reserve banking system

• Reserves

• Legal reserve requirement

• Excess reserves

• Loans

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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

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• 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

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• 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

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Total demand deposits after lending and re-lending by banks

Banks Demand Deposits

Citibank $1,000Fleet 800Bank of New York 640 + other banks + additional deposits ___________ = $ 5,000 Total

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Money multiplier (m) = 1 / required reserve ratio

= 1 / .20

= 5

Total demand deposits (M) = m x initial deposit

$5,000 = 5 x $1,000