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1、29The Monetary System第1页/共45页THE MEANING OF MONEYMoney is the set of assets in an economy that people regularly use to buy goods and services from other people.第2页/共45页The Functions of MoneyMoney has three functions in the economy:Medium of exchangeUnit of accountStore of value第3页/共45页The Functions
2、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.第4页/共45页The Functions of MoneyUnit of AccountA unit of account is the yardstick people use to pos
3、t 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.第5页/共45页The Functions of MoneyLiquidityLiquidity is the ease with which an asset can be converted into the economys medium of exchange.第6页/共45页The Kinds
4、 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.第7页/共45页Money in the U.S.EconomyCurrency is the paper bills and
5、 coins in the hands of the public.Demand deposits are balances in bank accounts that depositors can access on demand by writing a check.第8页/共45页Figure 1 Money in the U.S.EconomyCopyright2003 Southwestern/Thomson LearningBillionsof Dollars Currency($580 billion)Demand deposits Travelers checks Other
6、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$5,455第9页/共45页CASE STUDY:Where Is All The Currency?In 2001 there was about$580 billion of U.S.currency outstanding.That is$2
7、,734 in currency per adult.Who is holding all this currency?Currency held abroadCurrency held by illegal entities第10页/共45页THE 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 econom
8、y.第11页/共45页THE 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.第12页/共45页THE FEDERAL RESERVE SYSTEMThe Structure of the Federal Reserve System:The prima
9、ry elements in the Federal Reserve System are:1)The Board of Governors2)The Regional Federal Reserve Banks3)The Federal Open Market Committee第13页/共45页The 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 s
10、even 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.第14页/共45页The Feds OrganizationThe Board of GovernorsSeven members Appointed by the president Confirmed by the SenateServ
11、e staggered 14-year terms so that one comes vacant every two years.President appoints a member as chairman to serve a four-year term.第15页/共45页The Feds OrganizationThe Federal Reserve System is made up of the Federal Reserve Board in Washington,D.C.,and twelve regional Federal Reserve Banks.第16页/共45页
12、The 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.第17页/共45页The Federal Reserve Sys
13、temCopyright2003 Southwestern/Thomson Learning第18页/共45页The Feds OrganizationThe Federal Reserve BanksThe New York Fed implements some of the Feds most important policy decisions.第19页/共45页The Feds OrganizationThe Federal Open Market Committee(FOMC)Serves as the main policy-making organ of the Federal
14、 Reserve System.Meets approximately every six weeks to review the economy.第20页/共45页The 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
15、York.The presidents of the other regional Federal Reserve banks(four vote on a yearly rotating basis).第21页/共45页The 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
16、 refers to the quantity of money available in the economy.第22页/共45页The 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 o
17、f last resort.Conducts monetary policy by controlling the money supply.第23页/共45页The 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 Fe
18、d purchases and sells U.S.government bonds.第24页/共45页The 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.第25页/共45页BANKS AND THE MONEY SUPPLYBanks can
19、 influence the quantity of demand deposits in the economy and the money supply.第26页/共45页BANKS 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 re
20、st.第27页/共45页BANKS AND THE MONEY SUPPLYReserve RatioThe reserve ratio is the fraction of deposits that banks hold as reserves.第28页/共45页Money 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 deposit
21、ed 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.第29页/共45页Money Creation with Fractional-Reserve BankingThis T-A
22、ccount 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$100.00第30页/共45页Money Creation with Fractional-Reserve Banking
23、When 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.第31页/共45页The Money MultiplierHow much money is eventually created in this economy?第32页/共45页T
24、he Money MultiplierThe money multiplier is the amount of money the banking system generates with each dollar of reserves.第33页/共45页The Money Multiplier AssetsLiabilitiesFirst National BankReserves$10.00Loans$90.00Deposits$100.00Total Assets$100.00Total Liabilities$100.00AssetsLiabilitiesSecond Nation
25、al BankReserves$9.00Loans$81.00Deposits$90.00Total Assets$90.00Total Liabilities$90.00Money Supply=$190.00!第34页/共45页The 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.第35页/共45页The Feds Tools of Monetary Cont
26、rolThe Fed has three tools in its monetary toolbox:Open-market operationsChanging the reserve requirementChanging the discount rate第36页/共45页The Feds Tools of Monetary ControlOpen-Market OperationsThe Fed conducts open-market operations when it buys government bonds from or sells government bonds to
27、the public:When the Fed buys government bonds,the money supply increases.The money supply decreases when the Fed sells government bonds.第37页/共45页The Feds Tools of Monetary ControlReserve RequirementsThe Fed also influences the money supply with reserve requirements.Reserve requirements are regulatio
28、ns on the minimum amount of reserves that banks must hold against deposits.第38页/共45页The 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 su
29、pply.Decreasing the reserve requirement increases the money supply.第39页/共45页The 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 increase
30、s the money supply.第40页/共45页Problems 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
31、.The Fed does not control the amount of money that bankers choose to lend.第41页/共45页SummaryThe 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 m
32、oney that has intrinsic value.Fiat money is money without intrinsic value.第42页/共45页SummaryThe 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.第43页/共45页SummaryWhen 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.第44页/共45页感谢您的观看。第45页/共45页