6.2: Monetary Policy
Read these lecture notes, which provide important details regarding attempts to manage the money supply and interest rates while achieving macroeconomic goals. As you are likely aware by now, monetary policy and fiscal policy are two instruments by which governments address economic expansions or contractions. As you progress in this course, keep in mind one instrument may be more effective in addressing those matters.
Read this article for a chronological study of how the Federal Reserve System came into being.
6.2.1: Purposes of Money
Read this section and attempt the "Try It” exercises at the end of the section. The three functions of money are: A medium of exchange, that is, a means of payment; A store of value, that is, a safe or vault for assets; and A unit of account (that is, the total cost of an item).
Read this section and attempt the "Try It” exercises at the end of the section. The three functions of money are: A medium of exchange, that is, a means of payment; A store of value, that is, a safe or vault for assets; and A unit of account (that is, the total cost of an item).
Read these lecture notes, which provide information about the functions and drawbacks of money.
6.2.2: The Supply of Money
Read this report, which includes data on money stock measures, seasonally adjusted components of M1, and seasonally adjusted components of non-M1 and M2. This report by the Federal Reserve differentiates between the various levels of the money supply from one period of time to another. Read this report in order to learn about the growth and wealth of the United States' economy and perform some rough calculations of your own.
6.2.3: Money Creation
Watch this video, which explains fractional reserve banking. Be mindful that total reserves are the checkable deposits that the public has placed in a commercial bank. Required reserves are a percentage of the checkable deposits that must remain in a commercial bank as required by the Federal Reserve. Required reserves are set by the Federal Reserve to protect banks from customers running on the bank, i.e., reserves protects a bank from customer panic. Excess reserves are a percentage of checkable deposits that a bank is authorized by the Federal Bank to lend out. Consequently, required reserves are deposits from which the banks earn a profit through the loan and repayment process.
Watch this lecture about full reserve banking.
Watch both parts of this lecture about simple fractional reserve accounting.
Watch both parts of this lecture about simple fractional reserve accounting.
Read this chapter for a brief overview of money, including its definitions and functions. At a minimum, you will gain insight into its use as an alternative to bartering. This reading also prepares you for additional perspectives and the assessment below.
Click on the "Quiz" link at the bottom of the page and follow the instructions to take the quiz.