Bài giảng MicroEconomics - Chapter 031 Money and Banking

Money andBankingChapter 31McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter ObjectivesThe functions of money Components of the money supplyWhat “backs” the money supplyThe Federal Reserve and the U.S. banking systemThe functions and responsibilities of the Federal Reserve 31-2Functions of Money Medium of exchangeUsed to buy/sell goodsUnit of accountGoods valued in dollarsStore of valueHold some wealth in money formMoney is liquid31-3Money DefinedM1CurrencyCheckable depositsInstitutions offering checkable depositsCommercial banksSavings and loan associationsMutual savings banksCredit unions31-4Money DefinedM2M1 plus near-moniesSavings deposits including money market deposit accounts (MMDA)Small time depositsMoney market mutual funds (MMMF)31-5Money DefinedM1M256%44%M118%Savings Deposits,Including Money MarketDeposit Accounts Small Time DepositsMoney Market MutualFunds Held By Individuals CurrencyCheckable Deposits16%14%52%$1,365Billion$7,499BillionJanuary 2008Totals+++++Source: Federal Reserve System31-6Money SupplyAre credit cards money?What “backs” the money supply?Nothing!Why is money valuable?AcceptabilityLegal tenderRelative scarcity31-7Money and PricesPrices affect purchasing power of moneyHyperinflation renders money unacceptableStabilizing money’s purchasing powerIntelligent management of the money supply – monetary policyAppropriate fiscal policy31-8Federal Reserve SystemHistorical backgroundBoard of Governors12 Federal Reserve Banks Serve as the central bankQuasi-public banksBanker’s bank31-9Federal Reserve SystemCommercial BanksThrift Institutions(Savings and Loan Associations,Mutual Savings Banks, Credit Unions)The Public(Households andBusinesses)12 Federal Reserve BanksBoard of GovernorsFederal Open Market Committee31-10Federal Reserve SystemThe 12 Federal Reserve BanksSource: Federal Reserve Bulletin31-11Federal Reserve SystemFederal Open Market CommitteeAids Board of Governors in setting monetary policyConducts open market operationsCommercial banks and thrifts7,300 commercial banks11,000 thrifts31-12Federal Reserve FunctionsIssue currencySet reserve requirementsLend money to banks Set discount rateCheck collectionFiscal agent for U.S. governmentSupervise banksControl the money supply31-13Federal Reserve SystemFederal Reserve independenceRecent developmentsRelative decline of banks and thriftsConsolidation Convergence of services provided by financial institutionsGlobalization of financial marketsElectronic payments31-14Financial InstitutionsWorld’s 12 Largest Financial Institutions, 2007Barclays (UK)BNP Paribas (FranceCitigroup (USA)HSBC Group (UK)UBS (Switzerland)Royal Bank of Scotland (UK)ING Group (Netherlands)Mitsubishi UFJ (Japan)Deutsche Bank Group (Ger)Bank of America (US)Allianz Worldwide (Ger)JPMorgan Chase (USA)0 1,300,000 1,600,000 1,900,000 Source: Organization for Economic Cooperation and DevelopmentAssets (Billions of U.S. Dollars)31-15U.S. Financial InstitutionsCommercial banksThriftsInsurance companiesMutual fund companiesPension fundsSecurities firmsInvestment banks31-16The Global GreenbackU.S. currency circulating abroadRussia $80 billionArgentina $50 billion$450 billion total60% of total US currency U.S. profits from dollars leavingBlack markets and illegal activitiesDollar offers stable purchasing powerExchange rate risk31-17Key Termsmedium of exchangeunit of accountstore of valueM1Federal Reserve Notestoken moneycheckable depositscommercial banksthrift institutionsnear-moniesM2savings accountmoney market deposit account (MMDA)time depositsmoney market mutual fund (MMMF)legal tenderFederal Reserve SystemBoard of GovernorsFederal Reserve BanksFederal Open Market Committee (FOMC)financial services industryelectronic payments31-18Next Chapter PreviewMoney Creation31-19