Functions of Money & Assets

Medium of Exchange

Money accepted for goods and services

Unit of Account

Money used to measure value

Store of Value

Money retaining value for future use

Standard of Deferred Payment

Money enabling transactions across time

Asset

Valuable item owned by an individual or firm

Commodity Money

Historical: Cowrie shells, gold, silver, pelts, modern: cigarettes

Fiat Money

Government-issued currency not backed by commodities

M1

Currency in circulation + checking/savings account deposits

M2

M1 + savings deposits, time deposits, money market funds

Banks

Institutions creating and destroying currency

Reserves

Funds held by banks at other banks

Required Reserves

Mandatory bank reserves based on deposits

Excess Reserves

Reserves beyond what banks must hold

Federal Reserve

Central bank issuing fiat money, managing money supply

FDIC

Created to insure bank deposits, prevent bank crises

Federal Open Market Committee (FOMC)

Manages money supply through open market operations

Monetary Policy Tools

Tools like open market operations, discount policy, reserve requirements

Federal Funds Interest Rate (FF)

Rate banks lend to each other overnight

Marvin Goodfriend

Economist, discussed Federal Reserve policies

GSEs

Government-Sponsored Enterprises

Charles Ha

Possibly a powerful figure in the Federal Reserve system