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Barter

The Origin of Money. Barter. Commodity money. Fiat or token money. Money accepted by law. THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE. Have you ever stopped to examine the features of a dollar bill?. Number refers to 5 th district; also corresponds to the letter E.

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Barter

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  1. The Origin of Money Barter Commodity money

  2. Fiat or token money Money accepted by law THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE

  3. Have you ever stopped to examine the features of a dollar bill? Number refers to 5th district; also corresponds to the letter E Federal Reserve Bank of Richmond Treasurer of the United States Secretary of the Treasury

  4. the American bald eagle the pyramid – a symbol of material strength and endurance The Great Seal of the United States

  5. “ANNUIT COEPTIS” - He has favored our undertakings What does the eye inside the triangle represent? Why is the pyramid unfinished? “NOVUS ORDO SECLORUM” A New Order of the Ages

  6. the former 13 colonies Out of Many, ONE The Executive Branch The Legislative Branch The Judiciary Branch PEACE and WAR

  7. Functions of Money • Medium of exchange • Store of value • Unit of account Liquidity property of money

  8. Measuring the money supply • M1 : transactions money • M2 : broad money or near monies • M3 : large-denomination money

  9. Transactions money M1 = currency in circulation + demand deposits + travelers’ checks + other checkable deposits

  10. Near Monies M2 = M1 + savings accounts + time deposits (< $100,000) + money market accounts + repurchase agreements (<$100,000)

  11. M3 = M2 + time deposits (>$100,000) + repurchase agreements (>$100,100) + Eurodollars

  12. Financial Intermediaries • Commercial banks • Savings and loan associations • Life insurance companies • Pension funds

  13. How the Modern Banking System Works • Fractional reserve banking system • Reserves • Legal reserve requirement • Excess reserves • Loans

  14. Illustration of money creation • Assume 20% legal reserve requirement Suppose Nina deposits $1,000 in her checking account at Citibank. T-account of Citibank: ______Assets________________Liabilities____________ Reserves $200 Demand deposits $1,000 Loans 800

  15. Kevin borrows $800 from Citibank, and buys a computer at CompUSA. • CompUSA deposits Kevin’s check at Fleet Bank. Fleet Bank’s T-account: _____Assets________________Liabilities_____________ Reserves $160 Demand Deposits $800 Loans 640

  16. Vivian borrows $640 from Fleet Bank and buys a new TV set at Sears department store. • Sears deposits Vivian’s check at Bank of New York. T-account of Bank of New York: ______Assets____________________Liabilities_______ Reserves $128 Demand deposits $640 Loans 512

  17. Total demand deposits after lending and re-lending by banks BanksDemand Deposits Citibank $1,000 Fleet 800 Bank of New York 640   + other banks + additional deposits ___________ = $ 5,000 Total

  18. The Money Multiplier Money multiplier (m) = 1 / required reserve ratio = 1 / .20 = 5 Total demand deposits (M) = m x initial deposit $5,000 = 5 x $1,000

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