Module 22-23

• Types of financial assets
• Financial intermediaries
• Role of money

Exit slip^

• A household’s wealth is the value of its accumulated savings.

• A financial asset is a paper claim that entitles the buyer to future income from the seller.

• A physical asset is a claim on a tangible object that gives the owner the right to dispose of the object as he or she wishes.

Money

Money is anything that is accepted as payment for goods and services.

Three roles:

• Medium of exchange.
• Store of value.
• Unit of account.
  • Worth?
    

Banking

Checkable deposits are an asset to the lender, and a liability on the bank.

• Required reserves
  • 10% of your money the bank has to keep.
• Excess reserves
  • What is used to grow the money supply.

When the government raises the reserve ratio, it forces banks to hold more money - contractionary.

When the government lowers the reserve ratio, it enables banks to loan out more money - builds the money supply.

One of the key components of monetary policy, Reserve Ratio.

Money Multiplier 

Every time a bank creates a new loan, new money is created in the economy---because it creates money that does not exist before that. The money will eventually have to be loaned back.

The amount of money created with an initial deposit.

\(Money Multiplier = 1/Rr\)

The key to our economy are loans.

Fed

Created in 1913 in response to the panic of 1907.

It oversees all banks today; it regulates banks and ensures they are fiscally responsible. Housed in Washington reserve.

It was made to provide banks with liquidity; it controls the money supply. "The banks of the banks."

Three tools to conduct monetary policy - monetary is the preferred method

• Expand or contract the money supply
  • Reserve requirement
  • Open mark operations - Most widely used
  • Discount rate - Sometime used