Please enable JavaScript.
Coggle requires JavaScript to display documents.
MONEY, Monetary multiplier = 1/required reserve ratio = 1/R, Resourced -…
MONEY
Money Supply:
Medium Exchange
Function efficiency - used to buy and sell goods
Unit of account
Goods valued in dollars - its a way to value business activities
Store of value
Hold some wealth in money form - instead of keeping actual products
Money is liquid
Components of money supply:
M1
Currency - token money
Checkable deposits - made at banks
Institutions offering checkable deposits:
Commercial banks
Savings and loan associations
Mutual savings banks
Credit unions
M2 (larger than M1)
= m1 + near monies (most types of savings)
savings deposits including money market deposit accounts
small denominated time deposits
money market mutual funds
Money Creation:
Functional Reserve System: developing of a functioning banking unit system is key to
The goldsmiths (banking developed as early traders - unsafe)
Stored gold and gave a receipt
Receipts used as money by public
Made loans by issuing receipts
Characteristics
Banks creating money through lending
Banks are subject to panic such as a system fail - causing a bank run where everyone cancels deposits the same time
The Money Multiplier (Key measure in banking)
Helps us to predict the money supply that will be able to drive economic growth
Maximum amount of new money created by a single dollar of excess reserves
Higher reserve, lower money creation
Reversibility :
Making loans creates money
Loan repayments destroys money
Monetary multiplier = 1/required reserve ratio = 1/R
Resourced - Class slides