Upload
dale-deboer
View
136
Download
1
Tags:
Embed Size (px)
DESCRIPTION
Money
Citation preview
MoneySpring 2013
Topic 4
What is the alternative to money?
Barter
Inefficiency
What is money?
Anything widely accepted as a medium of exchange
Liquidity
Is gold money?
Functions of money
Medium of exchange
Unit of account
Store of value
Types of money
Commodity
Convertible paper currency
Commodity backed money
Fiat money
Measures of money
M1
M2
MZM
Why so many measures?
Federal Reserve
Created 1913
12 regional banks
Quasi-governmental entity
Functions of the Fed
Clearinghouse for transactions
Supervisor of bank operations
Controller of the money supply
FOMC
Main entity for setting monetary policy for the US
Members
Board of Governors
Head of the NY Fed
4 other Fed presidents
Money creation
100% reserve requirement
Money creation
100% reserve requirement
10% reserve requirement
Which is it?
Tools of monetary policy
Required reserve ratio
Tools of monetary policy
Required reserve ratio
Primary credit rate
Tools of monetary policy
Required reserve ratio
Primary credit rate
Federal funds rate
Tools of monetary policy
Required reserve ratio
Primary credit rate
Federal funds rate
Open market transactions
Money multiplier
1 ÷ reserve ratio
At best an estimate
Why care about money?
Connection to interest rates
Money market
Why care about money?
Connection to interest rates
Connection to prices
Equation of exchange
M x V = P x Y
Golden Rule
Milton Friedman
3 percent growth
Why is it not that easy?
“Pushing on a string”
Loans may not be given
Hoarding
Velocity may change
Velocity
So why worry?
Costs of inflation
Shoeleather costs
Menu costs
Tax distortions
Redistribution of wealth
So why worry?
Costs of inflation
Deflation is worse