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Money Money

Money. Money: anything that functions as a means of payment (medium of exchange), unit of account, and store of value.GREATLY reduces transaction costs!Barter (trade) much less efficient for it demands a double coincidence of wants. Money. Many items have played the role of money moneygold, cigar

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Money Money

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    1. Money Money Jim Mahar Fin 321

    2. Money Money: anything that functions as a means of payment (medium of exchange), unit of account, and store of value. GREATLY reduces transaction costs! Barter (trade) much less efficient for it demands a double coincidence of wants

    3. Money Many items have played the role of money money gold, cigarettes, etc ideal money is easy to transport, doesn’t “go bad,” widely recognized, and can not be counterfeited

    4. Money and Economic development By reducing transaction costs and thereby encouraging more trade, it can be argued that money allows the development of a specialization of labor that is necessary for economic development. Thus without money, all must be largely self-sufficient.

    5. Functions of money Medium of exchange-means of payment Unit of account-standardized means of measuring prices Store of value-must retain value

    6. Measuring Money Not as easy as it would appear What should we use as money? Just currency? Currency and other stored money? Multiple definitions

    7. Money definitions What we call money has changed over time as technology and financial instruments have changed

    8. Money Aggregates Fed has several definitions of money M1--currency and checkable deposits checkable deposits = deposits subject to check withdrawal definitions changes

    9. Money definitions continued M2 = M1 + other highly liquid assets such as money market deposit accounts (individual small time deposits and MM funds) M3= M2 + less liquid assets (Lg time deposits, term repo’s, institutional MM funds)

    10. Domestic Non-financial Debt Outstanding loans and debts debt owned by non-financial sector so when credit flows increase, DFND increases

    11. Relative sizes As of January 1999 as of December 2002 M1= $1,090.7 Billion, $1,206.1 M2= $4,425.6 Billion,$5,802.5 M3= $6,019.0 Billion,$8.528.2 DNFD=$16,155 Billion, ??

    12. Money Supply Continued Definitions change over time For a long time Fed focused on M1 and more recently M2 and DNFD In 1999 the Fed suggested including equities in the mix, it is still unclear exactly how much this enters the mix, but clearly is considered

    13. Money Targets Money supply influences economy and inflation The targets change M1 used to be targeted , then M2, the DFND, now DFND plus other measures of economy

    14. Evolution of payments system Money to electronic payments lose float, but gain efficiency Easy section on ATMs, electronic fund transfers etc.

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