What is Money?
• Medium of Exchange
• Store of Value
• Unit of Measurement
Money Supply
M1, M2, M3 determine the money supply
M1 = cash and checking account deposits
M2 = M1 + savings accounts & money market accounts
M3 = M2 + large, long-term deposits (time deposits like CDs &
institutional money markets).
• Which is the broadest measure of money; used by economists
to estimate the entire supply of money within an economy?
• M3
• Which is the most liquid?
• M1
M1, M2, M3 and Liquidity
The Fed
Fractional Reserve Banking
• Required Reserves
• Excess Reserves
• The Money Multiplier
• The FDIC
– Protects deposits at banks up to $250,000
– Created by FDR during Great Depression
Monetary Policy
• Influencing the Economy by changing the
money supply.
• To fight inflation: Decrease the MS.
• To fight unemployment: Increase the MS.
Tools of the FOMC
• The Reserve Requirement
• The Discount Rate
• Buying / Selling of Bonds
• Keynesians vs. Monetarists
Monetary Policy:
Recent History
Greenspan’s History, 1987-95
February, 1994
Recent Presidents
March, 1997
December, 2000
January,
2001
July 2004
September
2006
October 2008
June 24, 2008