曼昆经济学原理宏观经济学分册英文原版——29monetarysystem.pptx

10 MONEY AND PRICES IN THE LONG RUNCopyright 2004 South-Western29The Monetary SystemCopyright 2004 South-WesternTHE MEANING OF MONEYMoney is the set of assets in an economy that people regularly use to buy goods and services from other people.Copyright 2004 South-WesternThe Functions of MoneyMoney has three functions in the economy:Medium of exchangeUnit of accountStore of valueCopyright 2004 South-WesternThe Functions of MoneyMedium of ExchangeA medium of exchange is an item that buyers give to sellers when they want to purchase goods and services.A medium of exchange is anything that is readily acceptable as payment.Copyright 2004 South-WesternThe Functions of MoneyUnit of AccountA unit of account is the yardstick people use to post prices and record debts.Store of ValueA store of value is an item that people can use to transfer purchasing power from the present to the future.Copyright 2004 South-WesternThe Functions of MoneyLiquidityLiquidity is the ease with which an asset can be converted into the economys medium of exchange.Copyright 2004 South-WesternThe Kinds of MoneyCommodity money takes the form of a commodity with intrinsic value.Examples:Gold,silver,cigarettes.Fiat money is used as money because of government decree.It does not have intrinsic value.Examples:Coins,currency,check deposits.Copyright 2004 South-WesternMoney in the U.S.EconomyCurrency is the paper bills and coins in the hands of the public.Demand deposits are balances in bank accounts that depositors can access on demand by writing a check.Figure 1 Money in the U.S.EconomyCopyright2003 Southwestern/Thomson LearningBillionsof Dollars Currency($580 billion)Demand deposits Travelers checks Other checkable deposits($599 billion)Everything in M1($1,179 billion)Savings deposits Small time deposits Money market mutual funds A few minor categories($4,276 billion)0M1$1,179M2$5,455Copyright 2004 South-WesternCASE STUDY:Where Is All The Currency?In 2001 there was about$580 billion of U.S.currency outstanding.That is$2,734 in currency per adult.Who is holding all this currency?Currency held abroadCurrency held by illegal entitiesCopyright 2004 South-WesternTHE FEDERAL RESERVE SYSTEMThe Federal Reserve(Fed)serves as the nations central bank.It is designed to oversee the banking system.It regulates the quantity of money in the economy.Copyright 2004 South-WesternTHE FEDERAL RESERVE SYSTEMThe Fed was created in 1914 after a series of bank failures convinced Congress that the United States needed a central bank to ensure the health of the nations banking system.Copyright 2004 South-WesternTHE FEDERAL RESERVE SYSTEMThe Structure of the Federal Reserve System:The primary elements in the Federal Reserve System are:1)The Board of Governors2)The Regional Federal Reserve Banks3)The Federal Open Market CommitteeCopyright 2004 South-WesternThe Feds OrganizationThe Fed is run by a Board of Governors,which has seven members appointed by the president and confirmed by the Senate.Among the seven members,the most important is the chairman.The chairman directs the Fed staff,presides over board meetings,and testifies about Fed policy in front of Congressional Committees.Copyright 2004 South-WesternThe Feds OrganizationThe Board of GovernorsSeven members Appointed by the president Confirmed by the SenateServe staggered 14-year terms so that one comes vacant every two years.President appoints a member as chairman to serve a four-year term.Copyright 2004 South-WesternThe Feds OrganizationThe Federal Reserve System is made up of the Federal Reserve Board in Washington,D.C.,and twelve regional Federal Reserve Banks.Copyright 2004 South-WesternThe Feds OrganizationThe Federal Reserve BanksTwelve district banksNine directorsThree appointed by the Board of Governors.Six are elected by the commercial banks in the district.The directors appoint the district president,which is approved by the Board of Governors.The Federal Reserve SystemCopyright2003 Southwestern/Thomson LearningCopyright 2004 South-WesternThe Feds OrganizationThe Federal Reserve BanksThe New York Fed implements some of the Feds most important policy decisions.Copyright 2004 South-WesternThe Feds OrganizationThe Federal Open Market Committee(FOMC)Serves as the main policy-making organ of the Federal Reserve System.Meets approximately every six weeks to review the economy.Copyright 2004 South-WesternThe Feds OrganizationThe Federal Open Market Committee(FOMC)is made up of the following voting members:The chairman and the other six members of the Board of Governors.The president of the Federal Reserve Bank of New York.The presidents of the other regional Federal Reserve banks(four vote on a yearly rotating basis).Copyright 2004 South-WesternThe Feds OrganizationMonetary policy is conducted by the Federal Open Market Committee.Monetary policy is the setting of the money supply by policymakers in the central bankThe money supply refers to the quantity of money available in the economy.Copyright 2004 South-WesternThe Federal Open Market CommitteeThree Primary Functions of the FedRegulates banks to ensure they follow federal laws intended to promote safe and sound banking practices.Acts as a bankers bank,making loans to banks and as a lender of last resort.Conducts monetary policy by controlling the money supply.Copyright 2004 South-WesternThe Federal Open Market CommitteeOpen-Market OperationsThe money supply is the quantity of money available in the economy.The primary way in which the Fed changes the money supply is through open-market operations.The Fed purchases and sells U.S.government bonds.Copyright 2004 South-WesternThe Federal Open Market CommitteeOpen-Market OperationsTo increase the money supply,the Fed buys government bonds from the public.To decrease the money supply,the Fed sells government bonds to the public.Copyright 2004 South-WesternBANKS AND THE MONEY SUPPLYBanks can influence the quantity of demand deposits in the economy and the money supply.Copyright 2004 South-WesternBANKS AND THE MONEY SUPPLYReserves are deposits that banks have received but have not loaned out.In a fractional-reserve banking system,banks hold a fraction of the money deposited as reserves and lend out the rest.Copyright 2004 South-WesternBANKS AND THE MONEY SUPPLYReserve RatioThe reserve ratio is the fraction of deposits that banks hold as reserves.Copyright 2004 South-WesternMoney Creation with Fractional-Reserve BankingWhen a bank makes a loan from its reserves,the money supply increases.The money supply is affected by the amount deposited in banks and the amount that banks loan.Deposits into a bank are recorded as both assets and liabilities.The fraction of total deposits that a bank has to keep as reserves is called the reserve ratio.Loans become an asset to the bank.Copyright 2004 South-WesternMoney Creation with Fractional-Reserve BankingThis T-Account shows a bank thataccepts deposits,keeps a portion as reserves,and lends out the rest.It assumes a reserve ratio of 10%.AssetsLiabilitiesFirst National BankReserves$10.00Loans$90.00Deposits$100.00Total Assets$100.00Total Liabilities$100.00Copyright 2004 South-WesternMoney Creation with Fractional-Reserve BankingWhen one bank loans money,that money is generally deposited into another bank.This creates more deposits and more reserves to be lent out.When a bank makes a loan from its reserves,the money supply increases.Copyright 2004 South-WesternThe Money MultiplierHow much money is eventually created in this economy?Copyright 2004 South-WesternThe Money MultiplierThe money multiplier is the amount of money the banking system generates with each dollar of reserves.Copyright 2004 South-WesternThe Money Multiplier AssetsLiabilitiesFirst National BankReserves$10.00Loans$90.00Deposits$100.00Total Assets$100.00Total Liabilities$100.00AssetsLiabilitiesSecond National BankReserves$9.00Loans$81.00Deposits$90.00Total Assets$90.00Total Liabilities$90.00Money Supply=$190.00!Copyright 2004 South-WesternThe Money MultiplierThe money multiplier is the reciprocal of the reserve ratio:M=1/RWith a reserve requirement,R=20%or 1/5,The multiplier is 5.Copyright 2004 South-WesternThe Feds Tools of Monetary ControlThe Fed has three tools in its monetary toolbox:Open-market operationsChanging the reserve requirementChanging the discount rateCopyright 2004 South-WesternThe Feds Tools of Monetary ControlOpen-Market OperationsThe Fed conducts open-market operations when it buys government bonds from or sells government bonds to the public:When the Fed buys government bonds,the money supply increases.The money supply decreases when the Fed sells government bonds.Copyright 2004 South-WesternThe Feds Tools of Monetary ControlReserve RequirementsThe Fed also influences the money supply with reserve requirements.Reserve requirements are regulations on the minimum amount of reserves that banks must hold against deposits.Copyright 2004 South-WesternThe Feds Tools of Monetary ControlChanging the Reserve RequirementThe reserve requirement is the amount(%)of a banks total reserves that may not be loaned out.Increasing the reserve requirement decreases the money supply.Decreasing the reserve requirement increases the money supply.Copyright 2004 South-WesternThe Feds Tools of Monetary ControlChanging the Discount RateThe discount rate is the interest rate the Fed charges banks for loans.Increasing the discount rate decreases the money supply.Decreasing the discount rate increases the money supply.Copyright 2004 South-WesternProblems in Controlling the Money SupplyThe Feds control of the money supply is not precise.The Fed must wrestle with two problems that arise due to fractional-reserve banking.The Fed does not control the amount of money that households choose to hold as deposits in banks.The Fed does not control the amount of money that bankers choose to lend.Copyright 2004 South-WesternSummaryThe term money refers to assets that people regularly use to buy goods and services.Money serves three functions in an economy:as a medium of exchange,a unit of account,and a store of value.Commodity money is money that has intrinsic value.Fiat money is money without intrinsic value.Copyright 2004 South-WesternSummaryThe Federal Reserve,the central bank of the United States,regulates the U.S.monetary system.It controls the money supply through open-market operations or by changing reserve requirements or the discount rate.Copyright 2004 South-WesternSummaryWhen banks loan out their deposits,they increase the quantity of money in the economy.Because the Fed cannot control the amount bankers choose to lend or the amount households choose to deposit in banks,the Feds control of the money supply is imperfect.