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Unit 4: Monetary Policy Basics

Uses of Money:
  1. Medium of Exchange
  2. Unit of Account
  3. Store of Value
Types of Money:
  1. Commodity money
  2. Representative money (IOU’s)
  3. Fiat money ($ bc govt says so)
Characteristics of Money:
  1. Durability
  2. Portability
  3. Divisibility
  4. Uniformity
  5. Scarcity
  6. Acceptability
Money Supply:
    M1 Money) cash, coins, currency, traveler’s checks, demand or checkable deposits (largest component)
    M2 Money) M1 Money + savings accounts
    M3 Money) M2 Money + money market accounts + CDs
Liquidity: easy to convert to cash
Balance Sheet: summarizes finance decision of a bank at a certain time
Liabilities = Assets
Liabilities (owe): RR and ER;
Assets (own): DD; net worth or owner’s equity

Required Reserve + Excess Reserve = Demand Deposit
RR: Bank holds a fraction of deposit back as reserve in bank

ER: Held by a bank or financial institution in excess of what is required by regulators, creditors or internal controls
Open Market Operations: Buy or sell bonds; Fed can buy or sell bonds from public of banks; if Fed sells bonds, Fed gets cash and removes from money supply ; if Fed buys bonds, nation gets cash therefore increasing money supply

Discount Rate: FDIC member banks and other eligible institutions; borrow short term loans directly from Fed
Federal Fund Rate: FDIC member banks loan eachother money overnight; borrow from other banks

Prime Rate: Interest rate that banks charge out of most well known customer

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Comments

  1. Jadyn T.April 30, 2018 at 7:42 PM

    Note: Representative money (IOU) is worthless

    ReplyDelete
  2. UnknownApril 30, 2018 at 11:18 PM

    Remember that commodity money is a product, generally silver or gold.

    ReplyDelete

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