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Money

Money. Definition Uses Medium of exchange Unit of Account (“numeràire”) Store of value Measuring money (M1, M2, …). Financial intermediaries. Firms that manage the flow of financial funds from households and firms to other households and firms. Commercial banks S&L’s

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Money

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  1. Money • Definition • Uses • Medium of exchange • Unit of Account (“numeràire”) • Store of value • Measuring money (M1, M2, …)

  2. Financial intermediaries • Firms that manage the flow of financial funds from households and firms to other households and firms. • Commercial banks • S&L’s • Savings Banks and Credit Unions • Money Market Mutual Funds

  3. Money and Banking • Liabilities + Net worth = Assets • (deposits + owner’s equity = loans made) • deposits = reserves + loans made • reserves = vault cash + FRB account

  4. Economic functions of financial intermediaries • Create ‘liquidity’ • Minimize the ‘cost of obtaining funds’ • Minimize the ‘cost of lending funds’ • Pooling risks in order to maximize profits

  5. Regulation • Deposit insurance • FDIC, BIF, SAIF • Balance sheet rules • capital requirements • reserve requirements • deposit rules • lending rules

  6. Money “creation” • The deposit-loan-reserve chain.

  7. Short term AD - AS efffects • Shifts AD right or left

  8. Long term AD - AS effects • Shift of the SAS right of left

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