Chapter 8 Money the Price Level and Inflation

• Medium of exchange
• Unit of account
• Store of value

Eliminates double coincidence of wants, or barter.

An agreed measure for stating the prices of goods and services

It can be held and exchanged for later goods and services

Food is not a good store of value because it rots

Inflation lowers the value of money over time

• Commercial Banks
• Thrift Institutions
• Money market mutual funds

• Create Liquidity - get money when I want
• Pool Risk - one mistake spread over many ppl
• Lower cost of borrowing - spread cost of activity
• Lower cost of monitoring borrowers

• Reserves
• Liquid assets
• Securities 
• Loans

Notes and coins in depository institutions vault or its deposit at the Federal Reserve

U.S. government Treasury bills and commercial bills

Can be sold and instantly converted into reserves with no risk

Commitments of fixed amounts of money for agreed-upon periods of time

The development of new financial products with the goal to lower the cost of deposits or to increase the return from lending

Central bank of the US.

A bank's bank and public authority that regulates a nation's depository institutions and conducts monetary policy

Adjusts quantity of money in circulation and influences interest rates

• Board of Governors
• The regional Federal Reserve banks
• The Federal Open Market Committe

• 7 members
• Appointed by the President 
• 14 year terms (staggered) one seat becomes available every 2 years

Main policy making group

• 1. US government securities
• 2. Loans to depository institutions

• 1. Federal Reserve notes in circulation (MONEY in my pocket)
• 2. Depository institution deposits

Sum of the Federal Reserve notes, coins, and depository institutions' deposits at the Fed