CHAPTER14Money, Banks, and theFederal Reserve SystemChapterOutlineandLearningObjectives14.1WhatisMoney,andWhyDoWeNeed It?14.2HowlsMoneyMeasuredinthe United States Today?14.3HowDoBanksCreateMoney?14.4TheFederalReserveSystem14.5TheQuantityTheoryotMoney
1 Chapter Outline and Learning Objectives 14.1 What is Money, and Why Do We Need It? 14.2 How Is Money Measured in the United States Today? 14.3 How Do Banks Create Money? 14.4 The Federal Reserve System 14.5 The Quantity Theory of Money CHAPTER 14 CHAPTER Money, Banks, and the Federal Reserve System
MoneyMoney is one of the most important inventions of mankind,: Economists consider money to be any asset that people aregenerally willing to accept in exchange for goods and services, orfor payment of debts.. Asset: Anything of value owned by a person or a firm.We will begin by considering what role money serves, and what canbe used as money.Thenwewill considermodernformsofmoneyandtherolesofbanks and the government in creating and managing money.Finally, we will create a model relating prices to the amount ofmoney.@2015Pearson Education,Inc.?
© 2015 Pearson Education, Inc. 2 Money Money is one of the most important inventions of mankind. • Economists consider money to be any asset that people are generally willing to accept in exchange for goods and services, or for payment of debts. • Asset: Anything of value owned by a person or a firm. We will begin by considering what role money serves, and what can be used as money. • Then we will consider modern forms of money and the roles of banks and the government in creating and managing money. • Finally, we will create a model relating prices to the amount of money
WhatIsMoney,and WhyDoWeNeed It?14.1LEARNINGOBJECTIVEDefine moneyanddiscuss thefourfunctions of money@2015PearsonEducation,lnc
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 3 What Is Money, and Why Do We Need It? 14.1 Define money and discuss the four functions of money
Barterand the Inventionof MoneySuppose you were living before the invention of money: If you wanted to trade, you would have to barter, trading goods andservices directlyforother goods and servicesTrades would require a double coincidenceofwantsEventually, societies started using commodity money-goods usedas money that also have value independent of their use as money-likeanimal skins orprecious metals.Theexistence ofmoney makes trading mucheasier and allowsspecialization, an important step for developing an economy@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 4 Barter and the Invention of Money Suppose you were living before the invention of money. • If you wanted to trade, you would have to barter, trading goods and services directly for other goods and services. • Trades would require a double coincidence of wants. Eventually, societies started using commodity money—goods used as money that also have value independent of their use as money— like animal skins or precious metals. • The existence of money makes trading much easier and allows specialization, an important step for developing an economy
TheFunctionsof MoneyMoneyfulfillsfourprimaryfunctions:Medium of exchangeMoney is acceptable to a wide variety of parties as a form of paymentfor goods and services.Unit of accountMoney allows a way of measuring value in a standard manner.Storeof valueMoney allows people to defer consumption till a later date by storingvalue. Other assets can do this too, but money does it particularlywell because it is liquid, easily exchanged for goods.Standard of deferred paymentMoneyfacilitates exchanges acrosstimewhen we anticipatethat itsvalueinthefuturewillbepredictable2015PearsonEducation,Inc.5
© 2015 Pearson Education, Inc. 5 The Functions of Money Money fulfills four primary functions: Medium of exchange Money is acceptable to a wide variety of parties as a form of payment for goods and services. Unit of account Money allows a way of measuring value in a standard manner. Store of value Money allows people to defer consumption till a later date by storing value. Other assets can do this too, but money does it particularly well because it is liquid, easily exchanged for goods. Standard of deferred payment Money facilitates exchanges across time when we anticipate that its value in the future will be predictable