Money
description
Transcript of Money
Money
• Definition• Uses
• Medium of exchange• Unit of Account (“numeràire”)• Store of value
• Measuring money (M1, M2, …)
Financial intermediaries
• Firms that manage the flow of financial funds from households and firms to other households and firms.• Commercial banks• S&L’s• Savings Banks and Credit Unions• Money Market Mutual Funds
Money and Banking
• Liabilities + Net worth = Assets• (deposits + owner’s equity = loans
made)• deposits = reserves + loans made• reserves = vault cash + FRB
account
Economic functions of financial intermediaries
• Create ‘liquidity’• Minimize the ‘cost of obtaining
funds’• Minimize the ‘cost of lending
funds’• Pooling risks in order to maximize
profits
Regulation
• Deposit insurance• FDIC, BIF, SAIF
• Balance sheet rules• capital requirements• reserve requirements• deposit rules• lending rules
Money “creation”
• The deposit-loan-reserve chain.
Short term AD - AS efffects
• Shifts AD right or left
Long term AD - AS effects
• Shift of the SAS right of left