PRINCIPLES OF MACROECONOMICS PART III The Core of Macroeconomic Theory TENTH EDITION CASE FAIR OSTER © 2012 Pearson Education, Inc Publishing as Prentice Hall Prepared by: Fernando Quijano & Shelly ofTefft 47 PART III The Core of Macroeconomic Theory © 2012 Pearson Education, Inc Publishing as Prentice Hall of 47 The Money Supply and the Federal Reserve System 10 CHAPTER OUTLINE An Overview of Money What Is Money? Commodity and Fiat Monies Measuring the Supply of Money in the United States The Private Banking System PART III The Core of Macroeconomic Theory How Banks Create Money © 2012 Pearson Education, Inc Publishing as Prentice Hall A Historical Perspective: Goldsmiths The Modern Banking System The Creation of Money The Money Multiplier The Federal Reserve System Functions of the Federal Reserve Expanded Fed Activities Beginning in 2008 The Federal Reserve Balance Sheet How the Federal Reserve Controls the Money Supply The Required Reserve Ratio The Discount Rate Open Market Operations Excess Reserves and the Supply Curve for Money Looking Ahead of 47 An Overview of Money What Is Money? Money is a means of payment, a store of value, and a unit of account A Means of Payment, or Medium of Exchange PART III The Core of Macroeconomic Theory barter The direct exchange of goods and services for other goods and services medium of exchange, or means of payment What sellers generally accept and buyers generally use to pay for goods and services © 2012 Pearson Education, Inc Publishing as Prentice Hall of 47 PART III The Core of Macroeconomic Theory Which field of economic theory does not require that we know anything about money? a Microeconomics b Macroeconomics c Neither microeconomic nor macroeconomic theory requires that we know anything about money d None of the above Both microeconomic and macroeconomic theory require that we know quite a bit about money © 2012 Pearson Education, Inc Publishing as Prentice Hall of 47 PART III The Core of Macroeconomic Theory Which field of economic theory does not require that we know anything about money? a Microeconomics b Macroeconomics c Neither microeconomic nor macroeconomic theory requires that we know anything about money d None of the above Both microeconomic and macroeconomic theory require that we know quite a bit about money © 2012 Pearson Education, Inc Publishing as Prentice Hall of 47 An Overview of Money What Is Money? A Store of Value PART III The Core of Macroeconomic Theory store of value An asset that can be used to transport purchasing power from one time period to another liquidity property of money The property of money that makes it a good medium of exchange as well as a store of value: It is portable and readily accepted and thus easily exchanged for goods A Unit of Account unit of account A standard unit that provides a consistent way of quoting prices © 2012 Pearson Education, Inc Publishing as Prentice Hall of 47 PART III The Core of Macroeconomic Theory Which of the following refers to the liquidity property of money? a The fact that money makes a good medium of exchange b The fact that money is portable and comes in convenient denominations c The fact that money is readily accepted and thus easily exchanged for goods d All of the above © 2012 Pearson Education, Inc Publishing as Prentice Hall of 47 PART III The Core of Macroeconomic Theory Which of the following refers to the liquidity property of money? a The fact that money makes a good medium of exchange b The fact that money is portable and comes in convenient denominations c The fact that money is readily accepted and thus easily exchanged for goods d All of the above © 2012 Pearson Education, Inc Publishing as Prentice Hall of 47 An Overview of Money Commodity and Fiat Monies commodity monies Items used as money that also have intrinsic value in some other use PART III The Core of Macroeconomic Theory fiat, or token, money Items designated as money that are intrinsically worthless legal tender Money that a government has required to be accepted in settlement of debts currency debasement The decrease in the value of money that occurs when its supply is increased rapidly © 2012 Pearson Education, Inc Publishing as Prentice Hall 10 of 47 ... Looking Ahead of 47 An Overview of Money What Is Money? Money is a means of payment, a store of value, and a unit of account A Means of Payment, or Medium of Exchange PART III The Core of Macroeconomic... property of money that makes it a good medium of exchange as well as a store of value: It is portable and readily accepted and thus easily exchanged for goods A Unit of Account unit of account... consistent way of quoting prices © 2012 Pearson Education, Inc Publishing as Prentice Hall of 47 PART III The Core of Macroeconomic Theory Which of the following refers to the liquidity property of money?