- medium of exchange→to trade (barter)
- unit of account→established worth
- store of $→$ holding value over prd of time (store in bank)
- commodity $→gold+silver coins (examples); goods→no physical $ transaction
- representative $→"IOU"; backed by something tangible (you can feel--physical)
- fiat $→ $ b/c govt says so
- durability→wash it
- portability→carry
- divisibility→combos of $ (coins for $20)
- uniformity→look alike
- scarcity→$2, $100 bill
- acceptability→accepted everywhere
- M1 $→consists of currency (physical dollars+coins) in circulations, checkable deposits (aka checks aka demand deposits), and traveler's checks **use 75% of time
- M2 $→consists of M1 $ and savings accounts and money market accounts and deposits held by banks outside of U.S. **use 25% of time
- banks keep cash on hand (required reserves) to meet depositers' needs
- banks must keep reserve deposits in vaults or @ Federal reserve bank
- total reserves→funds held by a bank (TR=RR+ER or total reserves=required reserves+excess reserves)
- banks can legally lend only to extent of excess reserves
- reserve ratio=RR/TR
- banks can create $ by lending more than their reserves
- required reserves don't prevent bank panics b/c banks must keep RR (FDIC ensured)
- Reserve Requirement→gives Fed control over how much $ banks can create
- control nation's $ supply through monetary policy
- issue paper currency
- serves as clearing house for checks (takes 3-4 days to leave account)
- regulates banking activities
- serves as a bank for banks (issue loans)
**assets→what you own
**liabilities→what you owe
**Assets=Liabilities+Net Worth (claims of owners against firm's assets (necessarily not yours))
Example:
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