barter - philadelphia university · microsoft powerpoint - money creation1 author: lab4 created...
TRANSCRIPT
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BARTER
Commodity
money
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Money accepted by law
THIS NOTE IS LEGAL TENDER
FOR ALL DEBTS, PUBLIC AND PRIVATE
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Federal Reserve Bank
of Richmond
Federal Reserve Bank
of Richmond
Secretary of the TreasuryTreasurer of the United States
Number refers
to 5th district;
also corresponds
to the letter E
Have you ever stopped
to examine the
features of a dollar
bill?
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The Great Seal of the United States
the pyramid – a symbol of material strength and
endurance
the
American
bald eagle
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“ANNUIT COEPTIS” - He has favored our undertakings
What does the eye inside
the triangle represent?
“NOVUS ORDO SECLORUM”
A New Order of the Ages
Why is the pyramid unfinished?
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the former 13 colonies
The Executive Branch
The Legislative Branch
The Judiciary Branch
PEACE and WAR
Out of Many, ONE
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• Medium of exchange
• Store of value
• Unit of account
Liquidity property of moneyLiquidity property of moneyLiquidity property of moneyLiquidity property of money
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• M1 : transactions money
• M2 : broad money
or near monies
• M3 : large-denomination money
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M1 = currency in circulation
+ demand deposits
+ travelers’ checks
+ other checkable
deposits
Transactions money
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Near Monies
M2 = M1
+ savings accounts
+ time deposits (< $100,000)
+ money market accounts
+ repurchase agreements
(<$100,000)
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M3 = M2
+ time deposits
(>$100,000)
+ repurchase agreements
(>$100,100)
+ Eurodollars
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• Commercial banks
• Savings and loan associations
• Life insurance companies
• Pension funds
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• Fractional reserve banking system
• Reserves
• Legal reserve requirement
• Excess reserves
• Loans
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Illustration of money creation
• Assume 20% legal reserve requirement
Suppose Nina deposits $1,000 in her checking account at Citibank.
T-account of Citibank:
______Assets________________Liabilities____________
Reserves $200 Demand deposits $1,000
Loans 800
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• Kevin borrows $800 from Citibank, and buys a computer at CompUSA.
• CompUSA deposits Kevin’s check at Fleet Bank.
Fleet Bank’s T-account:
_____Assets________________Liabilities_____________
Reserves $160 Demand Deposits $800
Loans 640
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• Vivian borrows $640 from Fleet Bank and buys a new TV set at Sears department store.
• Sears deposits Vivian’s check at Bank of New York.
T-account of Bank of New York:
______Assets____________________Liabilities_______
Reserves $128 Demand deposits $640
Loans 512
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Total demand deposits after lending
and re-lending by banks
Banks Demand Deposits
Citibank $1,000
Fleet 800
Bank of New York 640
↓ ↓
+ other banks + additional deposits
___________
= $ 5,000 Total
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Money multiplier (m) = 1 / required reserve ratio
= 1 / .20
= 5
Total demand deposits (M) = m x initial deposit
$5,000 = 5 x $1,000