http://economistsview.typepad.com/economistsview/2011/03/fast-facts-about-radiation.html

What is Money?

1) medium of exchange

2) unit of accounting

3) store of value

What is Money?

1) commodity money

2) fiat money

Has value in exchangeHas value as a commodity

Has value in exchange ONLYHas NO value as a commodity

What is Money?

1) medium of exchange

2) unit of accounting

3) store of value

http://www.frbsf.org/education/fedville/currency7.cfm

http://www.frbsf.org/publications/federalreserve/monetary/tools.html

http://economistsview.typepad.com/economistsview/2010/06/rudebusch-the-feds-exit-strategy-for-monetary-policy.html

http://www.youtube.com/watch?v=pVmxQsvj6lo&feature=related

http://www.federalreserve.gov/monetarypolicy/mpr_default.htm

Narayana Kocherlakota,President of the Federal Reserve Bank of Minneapolis,

2009 Annual Report, p. 3

I believe that during the last financial crises, macroeconomists (and I include myself among them) failed the country, and indeed the world.

In September 2008, central bankers were in desperate need of a playbook that offered a systematic plan of attack to deal with fast-evolving circumstances.

Macroeconomics should have been able to provide that playbook. It could not.

Of course, from a longer view, macroeconomists let policymakers down much earlier, because they did not provide policymakers with rules to avoid the circumstances that led to the global financial meltdown.

FASCISM!!!!

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. (Wikipedia)

The term monetary policy refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit as a means of helping to promote national economic goals. (Federal Reserve)

http://www.federalreserve.gov/generalinfo/faq/faqmpo.htm

Edmond S. Phelps,Nobel Laureate in Economics 2006

The upshot of my work is that the function of the Central Bank is to manage expectations of inflation. That’s what the whole game is about. I think that basic message is widely know in the Central Banking fraternity. http://nobelprize.org/mediaplayer/index.php?id=148

Expansionary (loose)Increases the supply of money

Used to close a contractionary GDP gap

to boost the economy out of a recession

Contractionary (tight)Decreases the supply of money

Used to close an expansionary GDP gap

to stop the economy from “overheating”

Expansionary (loose) Monetary Policy“quantitative easing”

Contractionary (tight) Monetary Policy

Expansionary Monetary Policy

Expansionary Monetary PolicyM1 money = CurrencyCoinsChecking accounts

M2 money = M1Savings accountsSmall time deposits

M3 money =M2Large time depositsMoney market acc.Govt. securities

L

Expansionary Monetary Policy

Deposits Req’dReserve

Ratio

Required Reserves

Excess Reserves

Loans

$1,000 20% $200 $800 $0

Deposits Req’dReserve

Ratio

Required Reserves

Excess Reserves

Loans

$1,000 20% $200 $0 $800

Deposits Req’dReserve

Ratio

Required Reserves

Excess Reserves

Loans

$1,000 20% $200 $0 $800

$1,800

Deposits Req’dReserve

Ratio

Required Reserves

Excess Reserves

Loans

$1,000 20% $200 $0 $800

$1,800 20% $160 $640 $800

Deposits Req’dReserve

Ratio

Required Reserves

Excess Reserves

Loans

$1,000 20% $200 $0 $800

$1,800 20% $160 $0 $1,440

Deposits Req’dReserve

Ratio

Required Reserves

Excess Reserves

Loans

$1,000 20% $200 $0 $800

$1,800 20% $160 $0 $1,440

$2,240

Deposits Req’dReserve

Ratio

Required Reserves

Excess Reserves

Loans

$1,000 20% $200 $0 $800

$1,800 20% $160 $0 $1,440

$2,240 20% $128 $512 $1,440

Deposits Req’dReserve

Ratio

Required Reserves

Excess Reserves

Loans

$1,000 20% $200 $0 $800

$1,800 20% $160 $0 $1,440

$2,240 20% $128 $0 $1,952

$2752

Deposits Req’dReserve

Ratio

Required Reserves

Excess Reserves

Loans

$1,000 20% $200 $0 $800

$1,800 20% $360 $0 $1,440

$2,240 20% $488 $0 $1,952

$2,752 20% $590 $0 $2,362

Deposits Req’dReserve

Ratio

Required Reserves

Excess Reserves

Loans

$2,752 20% $590 $0 $2,362

Deposits Req’dReserve

Ratio

Required Reserves

Excess Reserves

Loans

$2,752 20% $590 $0 $2,362

$1,000

Deposits Req’dReserve

Ratio

Required Reserves

Excess Reserves

Loans

$2,752 20% $590 $0 $2,362

$1,000 $3,362

$3,752