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Unit 6 - Coggle Diagram

- - - - Rand, dollars
    - - Compare prices of goods
      - Define debt obligations
      - Calculate nations GDP
      - Determine taxes
  - - - Liquidity
        
        The ease with which it can be converted quickly into accepted form of money, cash with little or no loss of purchasing power
        
        Cash is perfectly liquid
        
        House is highly liquid
        
        Time to find a buyer
        
        Loss of purchasing power due to fees of selling the house
- - - - Checkable deposits
        
        Institutions offering checkable deposits
        
        Commercial banks
        
        Primary depository institutions
        
        Make available loans
        
        Short term financial capital
        
        Finance consumer purchases
        
        Accepts deposits of households and businesses
        
        Keeps money safe until its demanded
        
        Thrift instititions
        
        Mutual savings banks
        
        Credit unions
        
        Accept deposits from and lend to members who usually works for the same company
        
        Savings and loan associations
        
        Accept deposits from households and businesses
        
        Use funds to finance housing mortgages
        
        Provide other loans
        
        Supplement commercial bank
        
        Safety and convenience
        
        Large component of money supply
        
        People can convert checks into money on demand
        
        All deposits in commercial banks or thrift institutions where checks can be withdrawn
      - Currency
        
        Paper money
        
        Federal reserve notes
        
        Token Money
        
        The face value of the piece is unrelated to its intrinsic value ( the physical material)
        
        Governments make sure that face value money is less than its intrinsic value to prevent people from destroying it and reselling it
        
        Coins
        
        Issued by US treasury
        
        Us department of treasury
      - M1=currency + checkable deposits
      - Qualifications
        
        Currency held by institutions are excluded from M1 and other measures of money supply
        
        To avoid double counting
        
        Checkable deposits of government is excluded
        
        enables a better assessment of money available to the private sector for spending
    - - M1 plus near-monies
        
        Near monies
        
        Categories
        
        Money market mutual funds (MMMF) held by individuals
        
        Shares offered by a Mutual fund company
        
        Combined funds of individual shareholders to buy interest -bearing short-term credit instruments such as certificates of deposit and Government securities.
        
        Depositor can redeem shares
        
        Include only MMMF accounts from individuals
        
        small-denominated time deposits
        
        Time deposit
        
        Funds become available at maturity
        
        Pays higher interest rate than MMDA
        
        CD or certificate of deposit
        
        Early withdrawal cause penalties
        
        Less than $100,000
        
        Convert into money after time period without penalty
        
        Savings deposits including money market deposit accounts (MMDA)
        
        Savings account
        
        Withdraw money from Money market deposit account (MMDA)
        
        2 more items...
        
        Easily withdraw or transfer money into currency or checkable account
        
        Highly liquid financial assets that does not function as a medium of exchange but can be converted into currency or checkable deposits
      - M2= M1 + savings deposits, including MMDA + small denominated time deposits + MMMF held by individuals
    - - Not money
      - Convenient way of obtaining short-term loans from financial institutions
- - - - Acceptability
        
        People accept currency and checkable deposits as money
      - Legal tender
        
        Government as designated currency as legal tender
        
        Bills contain statement
        
        Private firms can specify payment
        
        Non cash forms
        
        Credit cards, money orders and checks
        
        General acceptance is more important
        
        Checks has never been made a legal tender
        
        Government agencies
        
        Insure deposits up to $250,000
        
        Federal deposit insurance corporation (FDIC)and National credit union administration
        
        Enhances willingness to use checks
      - Relative scarcity
        
        Value of money
        
        Depends on supply and demand
        
        Moneys value is Derived from its scarcity relative to its utility
        
        Utility of money
        
        Capacity to be exchanged for a good or service
    - - Inflation and acceptability
        
        Runaway inflation or hyperinflation
        
        Hyperinflation renders money unacceptable
        
        Will cause money to ceased as a medium of exchange
        
        Countries may adopt foreign currency to counter hyperinflation
        
        When government issue so many pieces of paper currency that the purchasing power of each unit is almost totally undetermined
        
        People will not accept money and will start to barter instead
        
        Economy can only employ money as a unit account if its purchasing power is relatively stable
      - Stabilising moneys purchasing power
        
        Monetary policy
        
        Intelligent management of money supply and interest rates
        
        Appropriate fiscal policy
        
        Nations monetary authorities
        
        Make available a quantity of money and can change the amount through their policies
        
        Meant to contol inflation
        
        Stabilisation of the purchasing power requires to stabilise the price level
      - Purchasing power
        
        Purchasing power of money is the amount of goods and services a unit of money will buy
        
        When money losses its purchasing power, it loses its role as money
        
        The amount varies inversely with price level
        
        Prices affect purchasing power of money
        
        When price index or cost of living goes up, value of money goes down
        
        Because more are needed to buy goods.
        
        Price doubles the value declines by 50%
        
        When price index or cost of living goes down, value of money goes up
        
        Fewer money is needed to buy goods
        
        V=1/P
    - - Coins
        
        less intrinsic value than their face value
      - Checkable deposits
        
        No intrinsic value than their face value
        
        Debts of commercial banks and thrift institutions
        
        Bookkeeping entry
      - Paper Money
        
        Circulation of debt of the Federal Reserve Banks
        
        Inscribed paper
      - Government does not back currency with anything tangible
        
        why ?
        
        If they did
        
        The supply of money would vary with how much of the resource their is available.
        
        Give government freedom
        
        Enables them to provide as much or little as needed to maintain the value of money to suit the economic needs of the country
        
        Manage money supply
        
        Monetary authorities
        
        Attempt to provide the amount needed for the volume of business activity in that period to create full employment, Price-level stability and economic growth