20 Minute Keynote Challenge
Money, Money, Money...
Your task:
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Using your workbooks, textbooks, and online sources create a
keynote which answers your assigned question. Please cite your
sources.
The goals is to provide accurate, correct, and complete answers.
These will be combined into one keynote and posted on our wiki.
Group 1: Min Soo, Tim, Yen Fang,
Youyu
• Explain (in extreme detail) the three
functions of money. Provide some
examples.
3 Functions of Money
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Medium of Exchange
Unit of account
Store of value
Medium of exchange
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accepted by people
portable
uniform
divisible
Standard of value
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familiar
divisible
accepted
Store of value
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durable
have a stable value
Examples of money
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Precious metals, gem stones (gold, silver, etc)
Currency (dollars & coins)
Checks
Cards
Source
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p. 183 Rainbow book
p.229 Textbook
Group 2: Geon Ah, Paddy, Ching
Ching
• Explain (in extreme detail) M1, M2,
and M3.
M1, M2, M3
Ching Ching
Paddy
Geon-Ah
M1
All currency (coins, paper money) supplied by the government
Bank reservations are not included
Also include checkable deposits
supplied by commercial banks and saving institutes
includes items that are used as medium of exchange
ex)
M2
Broader measure of money stock
Key economic indicator used to forecast inflation
Everything included in M1 + savings deposits + small time
deposits +money market deposit accounts (MMDAs) + noninstitutional money market mutual funds (MMMFs) + certain
other short-term money market assets
M3
Money that we can’t get our hands on
But also includes M1 and M2
includes all components of M2 plus number of financial assets and
instruments generally employed by large businesses and financial
institutions
ex) large time deposits, institutional money market funds, short-term
repurchase, and other larger liquid assets funds
Citations
Rainbow book. p. 187
Wikipedia. <http://en.wikipedia.org/wiki/Money_supply>
Welker’s Wikinomics.
<http://welkerswikinomics.wetpaint.com/page/The+Supply+of+Mon
ey>
Group 3: DJ, Kevin, Sarah
• Explain (in extreme detail) MV=PQ.
The Equation of Exchange
MV = PQ
M = supply of money
V = velocity of money (average number of times per year a dollar is
spent on final goods and services)
P = price level
Q = physical volume of all goods and services produced (real GDP
MV = PQ
MV represents total amount spend by purchasers of output
PQ represents total amount received by sellers of that output
Both MV and PQ = nation’s nominal GDP
The dollar value of total spending has to equal the dollar value of
total output
Stable Velocity
GDP/M defines V
V in the equation of exchange is relatively stable
Stable means factors altering velocity (such as how frequently people are paid)
change gradually and predictably and can be readily anticipated.
Today velocity is higher than it was several decades ago
Velocity does not change in response to changes in the money supply
Changes in M
If the supply of money grows faster than the rate of real output (changes in
Q), then there will be inflation in the economy
A change in M causes a proportionate change in nominal BDP
Thus, changes in the money supply allegedly have a predictable effect on
nominal GDP (PxQ)
An increase in M increases P or Q or some combination of both and a
decrease in M has the opposite effect.
Sources
Old Econ textbook (McConnell Brue) p.323-324
Macro Rainbow Book (Morton Goodman) Activity 36 p. 191