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Unit 6: Money - Coggle Diagram
Unit 6: Money
Components of Money Supply
M1
Currency
Checkable deposits
Institutions offering checkable deposits
Commercial banks
Savings and loan associations
Mutual savings banks
Credit unions
M2
M1 plus near-monies
Savings deposits including money market deposit accounts (MMDA)
Small-denominated time deposits
Money market mutual funds (MMMF)
What “backs” money supply?
Guaranteed by government’s ability to keep value stable
Money as debt
Why is money valuable?
Acceptability
Legal tender
Relative scarcity
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
Fractional Reserve System
The Goldsmiths
Stored gold and gave a receipt
Receipts used as money by public
Made loans by issuing receipts
Characteristics:
Banks create money through lending
Banks are subject to “panics”
Functions of Money
Medium of exchange
Used to buy and sell goods
Unit of account
Goods valued in dollars
Store of value
Hold some wealth in money form
Money is liquid
The Money Multiplier
Maximum amount of new money created by a single dollar of excess reserves
Higher R, lower m
Reversibility
Making loans creates money
Loan repayment destroys money
Money-creating transactions of commercial banks
Multiple Bank Expansion
