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After reading this chapter, you should be able to: Identify and explain the functions of money and the components of the U.S. money supply; describe what "backs" the money supply, making us willing to accept it as payment; discuss the makeup of the Federal Reserve and its relationship to banks and thrifts;. | Money, Banking, and Financial Institutions McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Functions of Money Medium of exchange Used to buy/sell goods Unit of account Goods valued in dollars Store of value Hold some wealth in money form Money is liquid LO1 31- Money Definition LO1 M1 M2 Currency Checkable deposits Institutions offering checkable deposits Commercial banks Savings and loan associations Mutual savings banks Credit unions M1 plus near-monies Savings deposits including money market deposit accounts (MMDA) Small-denominated time deposits Money market mutual funds (MMMF) 31- What “Backs” the Money Supply? Guaranteed by government’s ability to keep value stable Money as debt Why is money valuable? Acceptability Legal tender Relative scarcity LO2 31- What “Backs” the Money Supply? Prices affect purchasing power of money Hyperinflation renders money unacceptable Stabilizing money’s purchasing power Intelligent management of the money supply – monetary policy Appropriate fiscal policy LO2 31- Federal Reserve - Banking System Historical background Board of Governors 12 Federal Reserve Banks Serve as the central bank Quasi-public banks Banker’s bank LO3 31- Federal Reserve – Banking System Commercial Banks Thrift Institutions (Savings and Loan Associations, Mutual Savings Banks, Credit Unions) The Public (Households and Businesses) 12 Federal Reserve Banks Board of Governors Federal Open Market Committee LO3 31- Federal Reserve – Banking System LO3 The 12 Federal Reserve Banks 31- Federal Reserve – Banking System Federal Open Market Committee Aids Board of Governors in setting monetary policy Conducts open market operations Commercial banks and thrifts 6,800 commercial banks 8,700 thrifts LO3 31- Federal Reserve Functions Issue currency Set reserve requirements Lend money to banks Collect checks Act as a fiscal agent for U.S. government Supervise banks . | Money, Banking, and Financial Institutions McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Functions of Money Medium of exchange Used to buy/sell goods Unit of account Goods valued in dollars Store of value Hold some wealth in money form Money is liquid LO1 31- Money Definition LO1 M1 M2 Currency Checkable deposits Institutions offering checkable deposits Commercial banks Savings and loan associations Mutual savings banks Credit unions M1 plus near-monies Savings deposits including money market deposit accounts (MMDA) Small-denominated time deposits Money market mutual funds (MMMF) 31- What “Backs” the Money Supply? Guaranteed by government’s ability to keep value stable Money as debt Why is money valuable? Acceptability Legal tender Relative scarcity LO2 31- What “Backs” the Money Supply? Prices affect purchasing power of money Hyperinflation renders money unacceptable Stabilizing money’s purchasing power .
