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Lecture Introduction to economics: Social issues and economic thinking: Chapter 22 - Wendy A. Stock

Chapter 22 - Monetary policy and the federal reserve. After completing this unit, you should be able to: Define the concept of money, explain how the fractional reserve banking system allows banks to create money, explain how the market for loans functions, describe the structure of the federal reserve system. | Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan Chapter 22 Monetary Policy and the Federal Reserve Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: Camera Press/Redux Pictures 1 Define the concept of money Explain how the fractional reserve banking system allows banks to create money Explain how the market for loans functions Describe the structure of the Federal Reserve System Summarize the roles of the Federal Reserve Explain how monetary policy takes place Illustrate the impact of monetary policy on the economy Assess the tradeoffs associated with monetary policy Copyright © 2013 John Wiley & Sons, Inc. 2 After studying this chapter, you should be able to: 2 Barter Exchange is the trading of goods and services directly for other goods or services, without using money. Medium of Exchange is an item that is widely accepted as payment for goods and services. Copyright © 2013 John Wiley & Sons, Inc. 3 THE EVOLUTION OF THE MONETARY SYSTEM 3 The three primary functions of money: (1) medium of exchange; (2) unit of account; (3) store of value. A Unit of Account is a standard measure of the value of goods and services. A Store of Value is something that can be saved and used at a later time. Copyright © 2013 John Wiley & Sons, Inc. 4 The Functions of Money 4 The standard definition of money supply is money in circulation called M1. M1 includes: cash, demand deposits, traveler ’s checks, and other checkable deposits. Copyright © 2013 John Wiley & Sons, Inc. 5 THE MONEY SUPPLY 5 Copyright © 2013 John Wiley & Sons, Inc. 6 Money supply in the U.S. 6 Balance Sheet is a statement of assets (things owned) and liabilities (things owed). Total Reserves are a bank’s deposits that it has received but has not lent out. Required Reserve Ratio (rrr) is the percentage of deposits that a bank must hold as reserves by law. Required Reserves is the dollar amount that a bank is required to hold as reserves. Copyright © . | Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan Chapter 22 Monetary Policy and the Federal Reserve Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: Camera Press/Redux Pictures 1 Define the concept of money Explain how the fractional reserve banking system allows banks to create money Explain how the market for loans functions Describe the structure of the Federal Reserve System Summarize the roles of the Federal Reserve Explain how monetary policy takes place Illustrate the impact of monetary policy on the economy Assess the tradeoffs associated with monetary policy Copyright © 2013 John Wiley & Sons, Inc. 2 After studying this chapter, you should be able to: 2 Barter Exchange is the trading of goods and services directly for other goods or services, without using money. Medium of Exchange is an item that is widely accepted as payment for goods and services. Copyright © 2013 John Wiley & Sons, Inc. 3 THE EVOLUTION OF