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Econ Ch14 Money & Banking
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Econ Ch14 Money & Banking

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  • 1. Chapter Money & Banking 14
  • 2. Objectives:
    • list the types of money
    • identify the characteristics of money
    • list the 3 basic ways economists measure the money supply
    • calculate how the money supply grows using the simple money multiplier
  • 3. Types of Money
    • Money: item used to buy goods and services
    • Commodity Money: money with an alternative use
    • Representative Money: money backed by something valuable
    • Fiat Money: money that is valuable because the Government backs it
    • Legal Tender: paper money and coins used within a nation
  • 4.  
  • 5. Roles of Money:
    • Medium of Exchange: way of buying stuff
    • Store of Value: holds the same value over time
    • Unit of Account: consistent way of understanding prices
  • 6. What makes Money Valuable?
    • Widely Accepted
    • Holds Value
    • Durable
    • Portable
    • Divisible
  • 7.  
  • 8. The Money Supply M1 + M2 + retirement accounts and other assets that are difficult to convert to cash Even less liquid M3 M1 + savings accounts Broader measure M2 Currency in circulation and traveler’s checks Transactions money-liquid assets M1 Example Definition Type of Money
  • 9. How Banks Work Banks use your deposited money to make loans
  • 10. Simple Money Multiplier: = Deposit Required Reserve SMM SMM x Excess Reserve = $
  • 11. SMM Example: = $100 20 5 5 x $80 = $400