Chapter 15

Money — A widely accepted means of payment

• currency — type of money, usually coins and bills

Federal bank — banks have reserves, and the Federal ReserveIss the state gov bank

• Federal bank — controls both the means of reserves and currency

  • Every country has a central banking system

  • majority of new money is created by simply adding money to reserves

Final means of payment — currency (paper bills and coins), reserves, and checking and savings accounts.

• savings account is not as liquid as a checking account

• protectsconsumerss and regulates banks

• clearing house associations — private mini central banks before the FED

  • these were the good banks that were basically a council of banks

How the Fed Influences Aggregate Demand:

• paying interest on reserves at the Fed banks

• open market operations

• acting as a lender as a last resort

• coordinating expectations

Federal FUnds rule: lending rate from one major bank to another

• guides short term funds rate

Open market operations: when gov buys or sell gov bonds

• when fed buys more bonds the interests rate goes down because demand for bonds id going up increasign price

  • this is related to aggregate demand runing cool deccrease running hot decrease

• REPO: temporary one day open market operations where you buy one one day and sell next day

  • no real long term effect of money supply

• Quanitative easing: long term intest reate were fed buys long term bonds or seccurities