11:373:101 Lecture Notes - Lecture 18: Federal Open Market Committee, Federal Reserve System, Money Creation
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18 Jul 2017
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Widely accepted as payment for goods and services. Relatively li(cid:395)uid (cid:894)sto(cid:272)ks a(cid:374)d (cid:271)o(cid:374)ds do(cid:374)"t (cid:272)ou(cid:374)t(cid:895) u(cid:374)ive(cid:396)sally a(cid:272)(cid:272)epted a(cid:374)d u(cid:374)de(cid:396)stood; easily exchanged. Held by the non-bank public + usable by the non-bank public. Definition of money is known as m1 + includes: Bank reserves (1) vault currency in banks not currently held by depositors. Money-like but a resource of the banking system (2) account balances that regular banks hold at the central bank. Not all money is currency, not all currency is money . Deposits become part of reserves (cid:374)ot i(cid:374) (cid:272)i(cid:396)(cid:272)ulatio(cid:374) a(cid:374)d the(cid:396)efo(cid:396)e (cid:374)ot (cid:272)o(cid:374)side(cid:396)ed money. Not (cid:373)o(cid:374)ey (cid:272)(cid:396)eatio(cid:374) us bu(cid:396)eau of e(cid:374)g(cid:396)avi(cid:374)g a(cid:374)d p(cid:396)i(cid:374)ti(cid:374)g replacing worn out currency. Money creation ce(cid:374)t(cid:396)al ba(cid:374)k a(cid:272)ts to i(cid:374)(cid:272)(cid:396)ease (cid:272)he(cid:272)ki(cid:374)g a(cid:272)(cid:272)ou(cid:374)t (cid:271)ala(cid:374)(cid:272)es of pu(cid:271)li(cid:272) = the federal reserve system (the fed ) Functions: (1) provides banking services for commercial banks (2) regulates commercial banks (3) conducts monetary policy (involves making changes in the supply of money and credit)
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