• http://www.youtube.com/watch?v=WCkOmcIl
79s
FUNCTIONS OF MONEY
FUNCTIONS OF MONEY
• Medium of Exchange
•Anything that is used to
determine value during the
exchange of goods and
services
FUNCTIONS OF MONEY
• Unit of Account
comparing the values of
goods and services
FUNCTIONS OF MONEY
• Store of Value
•Money keeps its value if
you decide to hold onto it or
spend it
PAPER MONEY
All paper money regardless of
issue date is still legal tender
• http://www.youtube.com/watch?v=Ll3uipTO4A
6 Characteristics of Money
1. Durability
2. Portability
3. Divisibility
4. Uniformity
5. Limited Supply
6. Acceptability
Federal Reserve Notes
• 99% of our money
• Current Denominations: $1, $2, $5, $10, $20,
$50, $100
• Before 1945: $500, $1,000, $5,000, $10,000
• July 14, 1969—Denominations of $500 and
larger were retired
• Treasury seal & serial numbers are green
United States Notes
• Make up less that 1% of currency
• Since 1969, only $10 denominations have
been issued.
• Prior to 1969, $2 and $5 were issued.
• 1966, $2 discontinued
• 1968, $5 discontinued
• Treasury seal and serial numbers are printed
in red.
UNFIT MONEY
• Average life of $1 bill is 17-18 months
• Larger denominations usually last longer
• Old, worn, torn, or soiled money is sent
to the Federal Reserve Bank to be
exchanged for new
Commodity Money
•Objects
that have
value in
themselves
Representative Money
• Objects that have
value because they
can be exchanged for
something of value
Fiat Money
•
•
•
•
Government decree of
“legal tender” not to be
refused in settling debts
or making purchases
MONEY SUPPLY
Money is defined two ways…
Currency
•Token Money
•Federal Reserve Notes
•Intrinsic Value
Checkable Deposits
•Commercial Banks
•Thrift Institutions
MONEY SUPPLY
Near-monies or Savings Deposits
• Money Market Deposit Accounts
Smaller Time Deposits
Money Market Mutual Funds (MMMFs)
MONEY SUPPLY
Currency (coins & paper money)
plus Checkable deposits
M1 M2 M3
equals M1
$1101
2000 Data
(billions of dollars)
MONEY SUPPLY
Currency (coins & paper money)
plus Checkable deposits
M1 M2 M3
equals M1
plus Savings deposits,
$1101
including MMDA’s
plus Small time deposits
plus Money market mutual fund
(MMMF) balances
equals M2
$4827
2000 Data
(billions of dollars)
MONEY SUPPLY
Currency (coins & paper money)
plus Checkable deposits
M1 M2 M3
equals M1
plus Savings deposits,
$1101
including MMDA’s
plus Small time deposits
plus Money market mutual fund
(MMMF) balances
equals M2
plus Large time deposits
equals M3
$4827
2000 Data
(billions of dollars)
$6853
WHAT ABOUT CREDIT CARDS?
WHAT BACKS THE MONEY SUPPLY?
Money as Debt
Value of Money
• Acceptability
• Legal Tender
• Relative Scarcity
Money and Prices
• Value of the Dollar
• D = 1/Price Level
Inflation and Acceptability
So, What Backs
the Money Supply?
Stable Value!
through...
•Appropriate Fiscal Policy
•Intelligent Management of
the Money Supply
THE FEDERAL RESERVE AND
THE BANKING SYSTEM
Centralization and Public Control
• Board of Governors
• Assistance & Advice
• Federal Open Market Committee
• Three Advisory Councils
• The 12 Federal Reserve Banks
• Central Bank Role
• Quasi-Public Banks
• Banker’s Banks
• Commercial Banks & Thrifts
THE FEDERAL RESERVE AND
THE BANKING SYSTEM
Open Market
Committee
Advisory
Councils
Board of
Governors
12 Federal
Reserve Banks
Thrift Institutions
Commercial
Banks
(Savings & loan associations,
mutual savings banks, credit unions)
The Public
(Households and
businesses)
FEDERAL RESERVE
•
•
•
•
Receive $ from commercial banks and others
Decides if it is fit or unfit
Fit is stored
Unfit is destroyed by machines that shred it
to 1/16 of an inch
• About 1/3 are unfit