ECON 102 1st Edition Lecture 28 Outline of Last Lecture I Role of Fiscal Policy in Economic Management a Government Policy Expansionary Contractionary Influence II Long Run Implications of Fiscal Policy Outline of Current Lecture I Types of Money a Types of Measuring Money II Monetary Role of Banks Current Lecture Types of Money Money is any asset that can easily be used to purchase goods and services Currency in circulation is cash held by the public Checkable bank deposits are bank accounts on which people can write checks The money supply is the total value of financial assets in the economy that are considered money o Two types of measuring money Narrow Measure Assets used to buy groceries Currency Traveler s Checks Checkable Bank Accounts Broad Measure Includes things like savings accounts that can easily and quickly be converted into Narrow Measure Broad Narrow Stocks bonds etc are excluded as they re not liquid enough A medium of exchange is an asset that individuals acquire for the purpose of trading rather than for their own consumption A store of value is a means of holding purchasing power over time A unit of account is a measure used to set prices and make economic calculations Commodity money is a good used as a medium of exchange that has other uses Commodity backed money is a medium of exchange with no intrinsic value whose ultimate value is guaranteed by a promise that it can be converted into valuable goods Fiat money is a medium of exchange whose value derives entirely from its official status as a means of payment These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute A bank is a financial intermediary that uses liquid assets in the form of bank deposits to finance the illiquid investments of borrowers A T account is a tool for analyzing a business s financial position by showing in a single table the business s assets and liabilities o A T account summarizes a bank s financial position The bank s assets 900 000 in outstanding loans to borrowers and reserves of 100 000 are entered on the left side Its liabilities 1 000 000 in bank deposits held for depositors are entered on the right side Bank reserves are the currency banks hold in their vaults plus their deposits at the Federal Reserve The reserve ratio is the fraction of bank deposits that a bank holds as reserves o The reserve ratio or 10 of its liabilities A bank run is a phenomenon in which many of a bank s depositors try to withdraw their funds because of fears of a bank failure o EX Like the movie It s a Wonderful Life
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