Econ notes Econ 1051
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This 2 page Class Notes was uploaded by Abbey Notetaker on Sunday May 1, 2016. The Class Notes belongs to Econ 1051 at University of Missouri - Columbia taught by George Chikhladze,Martha Steffens in Summer 2015. Since its upload, it has received 10 views. For similar materials see General Economics in Economcs at University of Missouri - Columbia.
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Date Created: 05/01/16
Chap 14 Functions of money Medium of exchange o Used to buy/sell goods Unit of account o Goods valued in dollars Store of value o Hold some wealth in money form Different degrees of liquidity Money Definition M1 Currency Checkable deposits Institutions Offering Checkable Deposits Commercial banks Savings and loan associations Mutual savings banks Credit union M2 M1 plus near-monies Savings deposits including money market deposit accounts(MMDA) Small-denominated time deposits Money market mutual funds Money market securities: very safe, very liquid, short term bonds issued by Treasury Department MMMFs vs. Hedge Funds. (very liquid) What “Backs” the money supply? Guaranteed by government ability to keep value stable Gold standard Why is money valuable? o Acceptability o Legal tender o Relative scarcity Prices affect purchasing power of money Hyperinflation renders money unacceptability Stabilizing moneys purchasing power o Intelligent management of the money supply-monetary policy o Appropriate fiscal policy Federal Reserve-Banking System Historical backround(1912) Different entities of the Fed Board of Governors Appointed by the President and confirmed by the Senate for 14 years Non renewable terms Headquarters in DC 7 governors, 1 of them is appointed as a chair 12 Federal Reserve Banks o serve as the central bank o Quasi-public banks o Bankers bank o NY Fed is the most important Federal Open Market Committee o 12 voting members, 7 governors plus 5 presidents of district banks o makes important monetary policy decisions o meet about 8 times a year Commercial banks and thrifts o 6,800 commercial banks o 8,700 thrifts Big Four: BPA, JP Morgan Chase, Citi groups, Wells Fargo Federal Reserve Functions Issue currency Set reserve requirements: Fed mandates every commercial banks to keep fraction of total deposits in reserve Lend money to banks(discount window) Collect checks Acts as a fiscal agent for U.S. Supervise banks Control the money supply and influence interest rates Federal Reserve Independence Est. by Congress as an independent agency Protects the Fed from political pressures Feds policies cant be reversed Fed is given a freedom to pursue its own objectives and choose monetary policy tools to do so
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