Please enable JavaScript.
Coggle requires JavaScript to display documents.
Econ 1.1 Unit6 Money - Coggle Diagram
Econ 1.1 Unit6 Money
-
The monetary multiplier
Defines the relationship btw any new excess reserves in the banking system and the magnified creation of new checkable-deposit money by banks as a group.
-
-
By excess reserves(E) X m , we calculate the maximum amount of new checkable-deposit money(D) that the banking system can create.
or
D = E X m
:arrow_up: the higher the reserve ratio, the :arrow_down: lower the monetary multiplier = less :arrow_down: the creation of new checkable-deposit money via loans., and vice versa
Reversibility:
If the dollar amount of loans made in some period > the dollar amount of loads paid off = checkable deposits will expand and the money supply will increase :arrow_up:, and vice versa.
-
-
The function of money
2)Unit of account:
-Society uses monetary units to measure the relative worth of a wide variety of goods, services & resources
-Money aids rational decision making(enabling buyers/sellers to easily compare the values of goods, services & resources by simply examining their money price.
-Allows us to define debt obligations.
-Determine taxes owed.
-Calculate the nation's GDP.
3)Store of value:
-Enables people to transfer purchasing power from the present to the future(money stored in safe or checking account)
-When inflation is nonexistent or mild, holding money is a relatively risk-free way to store your wealth.
1)Medium of exchange:
-Used for buying and selling goods & services.
-Money allows society to escape the complications of barter(exchange goods/services for other goods/services without using money.
-Because of its convenience, money enables society to gain the advantages of geographic and human specialization.
Asset liquidity
Liquidity-The ease with which it can be converted quickly into cash with little / :red_cross: no loss of purchasing power
Cash=Perfectly liquid
The money multiplier
-
An individual can safely lend only an amount = to its excess reserves, but a commercial banking system can lend by a multiple of its collective excess reserves