This document discusses key concepts related to money, banking, and monetary policy. It defines money and outlines its main functions as a medium of exchange, unit of account, and store of value. The document also discusses different types of money, including commercial money, commodity money, fiat money, and fiduciary money. It then explains monetary policy tools used by central banks like the Federal Reserve to influence money supply, such as open market operations, required reserve ratios, and discount rates. Fiscal policy is introduced as government decisions on spending and taxation that aim to help or maintain the economy. Finally, the document provides definitions of banking as accepting deposits and lending money to earn a profit, along with the expanded services now offered by banks.

1. MONEY
Meaning, Functions , Types , Monetary Policy, Objectives, Tools , Fiscal
Policy Meaning , Objectives , Tools Banking; Meaning , Types,
Functions

2. • SUBJECT :- ENGINEERING ECOMONICS AND MANAGMENT
• CLASS :- 2nd year , 3rd semester B.E electrical.
• TOPIC :money; meaning, functions , types , monetary policy
objectives, tools , fiscal policy meaning , objectives , tools
banking; meaning , types, functions.
• NAME :- Patanwadiya sevangi s.
Rajput nishtha m.
Zeeshan malek z.
Chudasama Bhavesh v.
Kaklotar Chintan m.
Patel Het b.

3. Money

4. MONEY, BANKING, AND MONETARY POLICY
The focus of this first week is on the basic concepts of the United States’ financial system.
Students will first learn what money is, how banks and the banking systems can influence
and control the supply and disposition of money, and the function of the Federal Reserve.
Lastly, the relationship between money and various economic variables will be discussed.
OBJECTIVES
1. Identify the functions of money and the money supply.
2. Illustrate the creation of money using the money multiplier effect.
3. Delineate the role of the Federal Reserve System in designing and implementing U.S.
Monetary policies.
4. Describe how changes in the money supply impact inflation.
5. Analyze the effect of changes in the reserve requirement, discount rate, and open market
policies.
TOPICS
Please read all the lectures by clicking on the following topics.
FUNCTIONS OF MONEY
MEASURES OF MONEY
BANKS AND MONEY CREATION
MONETARY POLICY

5. The Four Jobs of Money
•Medium of exchange
•Standard of value
•Store of value
•Standard of deferred payment

6. Functions of Money
Money is any good that is widely accepted in exchange of goods and services, as well as
payment of debts. Most people will confuse the definition of money with other things,
like income, wealth, and credit. Three functions of money are:
1. Medium of exchange: Money can be used for buying and selling goods and services. If
there were no money, goods would have to be exchanged through the process of barter
(goods would be traded for other goods in transactions arranged on the basis of mutual
need). For example: If I raise chickens and want to buy cows, I would have to find a
person who is willing to sell his cows for my chickens. Such arrangements are often
difficult. But Money eliminates the need of the double coincidence of wants.
2. Unit of account: Money is the common standard for measuring relative worth of
goods and service.
3. Store of value: Money is the most liquid asset (Liquidity measures how easily assets
can be spent to buy goods and services). Money’s value can be retained over time. It is a
convenient way to store wealth.

7. Types of money
1. Commercial money
2. Commodity money
3. Fiat money
4. Fiduciary money

8. Monetary Policy
Monetary Policy tools:
The Fed can use the following tools to influence the money supply.
1. Open Market Operation: The Fed can affect the money supply by buying or selling U.S. government
securities, using open market operations. When the Fed purchases a government security from the
public, it does so with money that did not exist in the system. Thus, bank reserves will rise, increasing
the money supply.
2. The Required-Reserve Ratio (r): The Fed can influence money supply by changing this ratio. This ratio
specified the amount banks must hold as reserves on all deposits and limits the amount that banks
may lend out. If the Fed increases the reserve ratio, the deposit and money multiplier will be smaller,
thereby further limiting the amount by which banks may expand the money supply.
3. Discount Rate: Banks will borrow funds when needed. When the banks borrow from the Fed, they
pay an interest rate called the Discount rate. When the discount rate is raised, banks will have less
incentive to borrow, thus lowering the money supply in the system.
When the economy is in inflationary gap, the Fed will adopt contractionary monetary policy to
decrease the money supply in the market by selling securities, raising the reserve rate, and/or
increasing the discount rate. These actions will lower the AD and close the GDP gap.
When the economy is in recessionary gap, the Fed will adopt expansionary monetary policy to increase
money supply in the market by buying securities, lowering the required reserve rate, and/or decreasing
the discount/federal funds rate. These actions will increase the AD and close the GDP gap.
However, these policy tools may not be effective due to issues like time lags, liquidity trap, or interest-
insensitive investments.

9. Fiscal Policy
• Def. Government decisions on spending and taxation that
are intended to improve or maintain the economy.
• Because the government is so large and has such an
impact on business, the decisions it makes has a HUGE
influence on the economy.

10. Fiscal Policy and the Economy
• The total level of government spending can be changed to
help increase or decrease the output of the economy
• Expansionary Policies: Policies that try to increase the
output of the economy
• Contractionary Policies: Policies that try to decrease the
output of the economy

11. Banking

13. Meaning of banking
People need money for day to day life as well as to meet future expenses such as higher
education of children, marriage of children, house building and even in old age.
In general terms, the business activity of accepting and safeguarding money owned by other
individuals and entities, and then lending out this money in order to earn a profit.
However, with the passage of time, the activities covered by banking business have widened
and now various other services are also offered by banks. The banking services these days
include issuance of debit and credit cards, providing safe custody of valuable items, lockers,
ATM services and online transfer of funds across the country / world.

14. Thank you