20 Minute Keynote ChallengeMoney, Money, Money...

Your task:

•Using your workbooks, textbooks, and online sources create a keynote which answers your assigned question. Please cite your sources.

•The goals is to provide accurate, correct, and complete answers.

•These will be combined into one keynote and posted on our wiki.

Group 1: Min Soo, Tim, Yen Fang, Youyu

•Explain (in extreme detail) the three functions of money. Provide some examples.

3 Functions of Money

•Medium of Exchange

•Unit of account

•Store of value

Medium of exchange

•accepted by people

•portable

•uniform

•divisible

Standard of value

• familiar

•divisible

•accepted

Store of value

•durable

•have a stable value

Examples of money

•Precious metals, gem stones (gold, silver, etc)

•Currency (dollars & coins)

•Checks

•Cards

Source

•p. 183 Rainbow book

•p.229 Textbook

Group 2: Geon Ah, Paddy, Ching Ching

•Explain (in extreme detail) M1, M2, and M3.

M1, M2, M3M1, M2, M3

Ching ChingPaddy

Geon-Ah

Ching ChingPaddy

Geon-Ah

M1M1All currency (coins, paper money) supplied by the government

Bank reservations are not included

Also include checkable deposits

supplied by commercial banks and saving institutes

includes items that are used as medium of exchange

ex)

M2M2Broader measure of money stock

Key economic indicator used to forecast inflation

Everything included in M1 + savings deposits + small time deposits +money market deposit accounts (MMDAs) + non-institutional money market mutual funds (MMMFs) + certain other short-term money market assets

M3M3Money that we can’t get our hands on

But also includes M1 and M2

includes all components of M2 plus number of financial assets and instruments generally employed by large businesses and financial institutions

ex) large time deposits, institutional money market funds, short-term repurchase, and other larger liquid assets funds

CitationsCitations

Rainbow book. p. 187

Wikipedia. <http://en.wikipedia.org/wiki/Money_supply>

Welker’s Wikinomics. <http://welkerswikinomics.wetpaint.com/page/The+Supply+of+Money>

Group 3: DJ, Kevin, Sarah

•Explain (in extreme detail) MV=PQ.

The Equation of The Equation of ExchangeExchange

The Equation of The Equation of ExchangeExchange

MV = PQMV = PQMV = PQMV = PQ

M = supply of moneyM = supply of money

V = velocity of money (average number of times per year a V = velocity of money (average number of times per year a

dollar is spent on final goods and services)dollar is spent on final goods and services)

P = price levelP = price level

Q = physical volume of all goods and services produced Q = physical volume of all goods and services produced

(real GDP(real GDP

MV = PQMV = PQMV = PQMV = PQ

MV represents total amount spend by purchasers of outputMV represents total amount spend by purchasers of output

PQ represents total amount received by sellers of that PQ represents total amount received by sellers of that

outputoutput

Both MV and PQ = nation’s nominal GDPBoth MV and PQ = nation’s nominal GDP

The dollar value of total spending has to equal the dollar The dollar value of total spending has to equal the dollar

value of total outputvalue of total output

Stable VelocityStable VelocityStable VelocityStable Velocity

GDP/M defines VGDP/M defines V

V in the equation of exchange is relatively stableV in the equation of exchange is relatively stable

Stable means factors altering velocity (such as how frequently people Stable means factors altering velocity (such as how frequently people

are paid) change gradually and predictably and can be readily are paid) change gradually and predictably and can be readily

anticipated.anticipated.

Today velocity is higher than it was several decades agoToday velocity is higher than it was several decades ago

Velocity does not change in response to changes in the money supplyVelocity does not change in response to changes in the money supply

Changes in MChanges in MChanges in MChanges in M

If the supply of money grows faster than the rate of real output If the supply of money grows faster than the rate of real output

(changes in Q), then there will be inflation in the economy(changes in Q), then there will be inflation in the economy

A change in M causes a proportionate change in nominal BDPA change in M causes a proportionate change in nominal BDP

Thus, changes in the money supply allegedly have a predictable Thus, changes in the money supply allegedly have a predictable

effect on nominal GDP (PxQ)effect on nominal GDP (PxQ)

An increase in M increases P or Q or some combination of both An increase in M increases P or Q or some combination of both

and a decrease in M has the opposite effect.and a decrease in M has the opposite effect.

SourcesSourcesSourcesSources

Old Econ textbook (McConnell Brue) p.323-324Old Econ textbook (McConnell Brue) p.323-324

Macro Rainbow Book (Morton Goodman) Activity 36 p. 191Macro Rainbow Book (Morton Goodman) Activity 36 p. 191