Chap13 Money And Banking

4,384 views

Published on

Published in: Economy & Finance, Technology
1 Comment
3 Likes
Statistics
Notes
  • Thanks for allowing me to download this rich presentation. It contains sufficient material to help understand the disciplines of Money and Banking. Students of Economics should have it.

    Muhammad Sadiq
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Views
Total views
4,384
On SlideShare
0
From Embeds
0
Number of Embeds
10
Actions
Shares
0
Downloads
237
Comments
1
Likes
3
Embeds 0
No embeds

No notes for slide

Chap13 Money And Banking

  1. 1. Money and Banking 13 C H A P T E R
  2. 2. FUNCTIONS OF MONEY <ul><li>Medium of Exchange </li></ul><ul><li>Unit of Account </li></ul><ul><li>Store of Value </li></ul>
  3. 3. MONEY SUPPLY M1 <ul><li>Currency </li></ul><ul><ul><li>Token Money </li></ul></ul><ul><ul><li>Federal Reserve Notes </li></ul></ul><ul><ul><li>Intrinsic Value </li></ul></ul><ul><li>Checkable Deposits </li></ul><ul><ul><li>Commercial Banks </li></ul></ul><ul><ul><li>Thrift Institutions </li></ul></ul>Definition…
  4. 4. MONEY SUPPLY M2 M1 = Plus... <ul><li>Near-monies </li></ul><ul><li>Savings Deposits </li></ul><ul><ul><li>Money Market Deposit Accounts (MMDAs) </li></ul></ul><ul><li>Smaller Time Deposits </li></ul><ul><li>Money Market Mutual Funds (MMMFs) </li></ul>
  5. 5. MONEY SUPPLY M2 = Plus... Large Time Deposits M3 Illustrated…
  6. 6. Currency (coins & paper money) plus Checkable deposits equals M1 M1 M2 M3 $1101 2000 Data (billions of dollars) MONEY SUPPLY
  7. 7. M1 M2 M3 $1101 2000 Data (billions of dollars) $4827 MONEY SUPPLY Currency (coins & paper money) plus Checkable deposits equals M1 plus Savings deposits, including MMDA’s plus Small time deposits plus Money market mutual fund (MMMF) balances equals M2
  8. 8. M1 M2 M3 $1101 2000 Data (billions of dollars) $4827 $6853 MONEY SUPPLY Currency (coins & paper money) plus Checkable deposits equals M1 plus Savings deposits, including MMDA’s plus Small time deposits plus Money market mutual fund (MMMF) balances equals M2 plus Large time deposits equals M3 Currency (coins & paper money) plus Checkable deposits equals M1 plus Savings deposits, including MMDA’s plus Small time deposits plus Money market mutual fund (MMMF) balances equals M2
  9. 9. WHAT ABOUT CREDIT CARDS?
  10. 10. WHAT BACKS THE MONEY SUPPLY? <ul><li>Money as Debt </li></ul><ul><li>Value of Money </li></ul><ul><ul><li>Acceptability </li></ul></ul><ul><ul><li>Legal Tender </li></ul></ul><ul><ul><li>Relative Scarcity </li></ul></ul><ul><li>Money and Prices </li></ul><ul><ul><li>Value of the Dollar </li></ul></ul><ul><ul><li>D = 1/Price Level </li></ul></ul><ul><li>Inflation and Acceptability </li></ul>
  11. 11. WHAT BACKS THE MONEY SUPPLY? So, What Backs the Money Supply? Stable Value! through... <ul><li>Appropriate Fiscal Policy </li></ul><ul><li>Intelligent Management of the Money Supply </li></ul>
  12. 12. THE DEMAND FOR MONEY Transactions Demand, D t varies directly with nominal GDP Asset Demand, D a varies inversely with the interest rate illustrated...
  13. 13. + Transactions Demand, D t THE DEMAND FOR MONEY Rate of interest, i (percent) Amount of money demanded (billions of dollars) D t 10 7.5 5 2.5 0 0 50 100 150 200 250 300
  14. 14. + = Transactions Demand, D t Asset Demand, D a THE DEMAND FOR MONEY Rate of interest, i (percent) Amount of money demanded (billions of dollars) D t 10 7.5 5 2.5 0 0 50 100 150 200 250 300 Rate of interest, i (percent) Amount of money demanded (billions of dollars) 10 7.5 5 2.5 0 D a 0 50 100 150 200 250 300
  15. 15. + = Transactions Demand, D t Asset Demand, D a Total demand for money, D m 0 50 100 150 200 250 300 THE DEMAND FOR MONEY Rate of interest, i (percent) Amount of money demanded (billions of dollars) D t 10 7.5 5 2.5 0 0 50 100 150 200 250 300 Rate of interest, i (percent) Amount of money demanded (billions of dollars) 10 7.5 5 2.5 0 D a Rate of interest, i (percent) Amount of money demanded (billions of dollars) 0 50 100 150 200 250 300 10 7.5 5 2.5 0 D m
  16. 16. + = Transactions Demand, D t Asset Demand, D a Total demand for money, D m 0 50 100 150 200 250 300 THE DEMAND FOR MONEY Rate of interest, i (percent) Amount of money demanded (billions of dollars) 0 50 100 150 200 250 300 10 7.5 5 2.5 0 S m Equilibrium Interest Rate i e Rate of interest, i (percent) Amount of money demanded (billions of dollars) D t 10 7.5 5 2.5 0 0 50 100 150 200 250 300 Rate of interest, i (percent) Amount of money demanded (billions of dollars) 10 7.5 5 2.5 0 D a Rate of interest, i (percent) Amount of money demanded (billions of dollars) 0 50 100 150 200 250 300 10 7.5 5 2.5 0 D m ADD THE MONEY SUPPLY TO FIND THE EQUILIBRIUM RATE OF INTEREST
  17. 17. Rate of interest, i (percent) Amount of money demanded (billions of dollars) 0 50 100 150 200 250 300 10 7.5 5 2.5 0 D m i e S m THE MONEY MARKET Suppose the money supply is decreased from $200 billion, S m, to $150 billion S m1 .
  18. 18. Rate of interest, i (percent) Amount of money demanded (billions of dollars) 0 50 100 150 200 250 300 10 7.5 5 2.5 0 D m i e S m A temporary shortage of money will require the sale of some assets to meet the need. S m1 THE MONEY MARKET
  19. 19. Rate of interest, i (percent) Amount of money demanded (billions of dollars) 0 50 100 150 200 250 300 10 7.5 5 2.5 0 D m i e S m THE MONEY MARKET Suppose the money supply is increased from $200 billion, S m, to $250 billion S m2 .
  20. 20. Rate of interest, i (percent) Amount of money demanded (billions of dollars) 0 50 100 150 200 250 300 10 7.5 5 2.5 0 D m i e S m S m2 THE MONEY MARKET A temporary surplus of money will require the purchase of some assets to meet the de- sired level of liquidity.
  21. 21. Rate of interest, i (percent) Amount of money demanded (billions of dollars) 0 50 100 150 200 250 300 10 7.5 5 2.5 0 D m i e S m S m2 THE MONEY MARKET A temporary surplus of money will require the purchase of some assets to meet the de- sired level of liquidity. Bonds are assumed as a typical asset with lower prices associated with higher interest rates
  22. 22. Centralization and Public Control <ul><li>Board of Governors </li></ul><ul><li>Assistance & Advice </li></ul><ul><ul><li>Federal Open Market Committee </li></ul></ul><ul><ul><li>Three Advisory Councils </li></ul></ul><ul><li>The 12 Federal Reserve Banks </li></ul><ul><ul><li>Central Bank Role </li></ul></ul><ul><ul><li>Quasi-Public Banks </li></ul></ul><ul><ul><li>Banker’s Banks </li></ul></ul><ul><li>Commercial Banks & Thrifts </li></ul>THE FEDERAL RESERVE AND THE BANKING SYSTEM
  23. 23. THE FEDERAL RESERVE AND THE BANKING SYSTEM Open Market Committee Advisory Councils Board of Governors 12 Federal Reserve Banks Commercial Banks Thrift Institutions (Savings & loan associations, mutual savings banks, credit unions) The Public (Households and businesses)
  24. 24. FED Functions & the Money Supply <ul><li>Issuing Currency </li></ul><ul><li>Setting Reserve Requirements & Holding Reserves </li></ul><ul><li>Lending Money to Banks & Thrifts </li></ul><ul><li>Providing for Check Collection </li></ul><ul><li>Acting as Fiscal Agent </li></ul><ul><li>Supervising Banks </li></ul><ul><li>Controlling the Money Supply </li></ul>
  25. 25. FED Functions & the Money Supply <ul><li>Federal Reserve Independence </li></ul><ul><li>Recent Developments </li></ul><ul><ul><li>Relative Decline of Banks and Thrifts </li></ul></ul><ul><ul><li>Financial Services Industry </li></ul></ul><ul><ul><li>Consolidation Among Banks and Thrifts </li></ul></ul><ul><ul><li>Globalization of Financial Markets </li></ul></ul><ul><ul><li>Electronic Transactions </li></ul></ul>
  26. 26. FED Functions & the Money Supply <ul><li>Federal Reserve Independence </li></ul><ul><li>Recent Developments </li></ul><ul><ul><li>Relative Decline of Banks and Thrifts </li></ul></ul><ul><ul><li>Financial Services Industry </li></ul></ul><ul><ul><li>Consolidation Among Banks and Thrifts </li></ul></ul><ul><ul><li>Globalization of Financial Markets </li></ul></ul><ul><ul><li>Electronic Transactions </li></ul></ul>Chapter Conclusions
  27. 27. <ul><li>medium of exchange </li></ul><ul><li>unit of account </li></ul><ul><li>store of value </li></ul><ul><li>M1, M2, M3 </li></ul><ul><li>token money </li></ul><ul><li>Federal Reserve Notes </li></ul><ul><li>checkable deposits </li></ul><ul><li>commercial banks </li></ul><ul><li>thrift institutions </li></ul><ul><li>near-monies </li></ul><ul><li>savings account </li></ul><ul><li>money market deposit account (MMDA) </li></ul><ul><li>time deposits </li></ul><ul><li>money market mutual fund (MMMF) </li></ul><ul><li>legal tender </li></ul><ul><li>transactions demand </li></ul><ul><li>asset demand </li></ul><ul><li>total demand for money </li></ul><ul><li>money market </li></ul><ul><li>Federal Reserve System </li></ul><ul><li>Board of Governors </li></ul><ul><li>Federal Open Market Committee (FOMC) </li></ul><ul><li>Federal Reserve Banks </li></ul><ul><li>financial services industry </li></ul><ul><li>electronic transactions </li></ul>KEY TERMS END BACK Copyright McGraw-Hill/Irwin 2002
  28. 28. How Banks and Thrifts Create Money Chapter 14 Coming up next...

×