Money

Harcourt Brace & Company
Welcome to
CASESTUDYHELP.COM
Different Measures of Money

Definition of Money
Money is nothing but the
set of assets in economy
that the people usually
use for purchasing the
goods & services from
the other people.

Functions of Money
Medium of Exchange: Anything which
is acceptable readily as the payment.
Unit of Measurement: Money serves
as the unit of account which may help
people to compare the relative value of
commodities and goods.
Storage of Value: A way to keep the
wealth in a ready form for the future
requirements.

Two Kinds of Money
Commodity Money: The thing which
performs the monetary function and
has nonmonetary, or alternative
utilization.
Illustrations: Silver, Gold , Cigarettes
Fiat Money: The thing which can be
served as money but which do not
have any other usage.
Illustrations: Currency, Coins, Check

Money v/s Economy of U.S.
Money Stock is nothing but the
quantity of money which is circulated
in the country’s economy.
Various ways of money measurement
in the economy:
 M1
 M2

The most common
forms of money are
as follows:
 Coins
 Check Deposits
 Currency
 Travelers Checks
Measurement of Money
M1

Measurement of Money
A wider measure of
money than M1 are as
follows:
 M1 +
 Time Deposits +
 Saving Deposits +
 other small categories +
 Mutual Funds + Money
Market
M2

Where are these Currency?
In the year 1996 there were
outstanding of about $380 billion
($1,900 per person in US).
The Location of outstanding currency
includes the following:
 Currency held by the illegal entities
 Currency which is held abroad
 Currency which is held in the businesses
for the transaction purpose.

Quick Quiz!
Describe the
three functions
of money.

Banknotes on Issue

Value of Bank notes in Circulation

Bank note Purchases

Bank notes in Australia 2012/2013

The monetary aggregates common to the Australian
Money base – It comprises the holding of the coins & notes by the private
sector, the deposits made by the banks with Reserve Bank, and the
liabilities of Reserve Bank to the private sector. It is also called a 'narrow
money' or 'M0'. This is the most liquid measure of the supply of money .
M1 – can be defined as the bank current deposits from the private non-bank
sector plus the currency. The M1 can be said to be a very liquid measure
of supply of money .
M3 – can be defined as M1 plus all the other (ADI) Authorised Deposit-
taking Institution, deposits from the private non-bank sector plus the
certificates of the deposits that are issued by the banks less ADI deposits
held with each other.

Changes in Money Supply by the Fed
Open-Market Operations: The basic way in
which the Fed changes the supply of money
done through the buying and selling of the
bonds of U.S. government with the newly
printed currency notes.
– For increasing the supply of money , the Fed
purchases bonds of government from public.
– For decreasing the supply of money , Fed
sells the bonds of government to public.

Measuring money
 Differentiating for what is money from
what isn't a money is difficult
For example, the MMMFs (Money Market Mutual Funds)
allows the writing of check, but provides a high return
than the checking accounts of bank : Is this money?
There is no single measure for the money stock.
–The M1 monetary aggregate
Includes the traveler's checks, currency which is held by
the public, the demand deposits (without interest) and the
other deposits (with interest).
All the elements of M1 are utilized in making the
payments, thus M1 is the closest measure of money to the
theoretical money description.

Fractional Banking Reserve
The Deposits into the banks can be
recorded as the assets or liabilities.
The Deposits which are received but
not lent are known as the reserves.
The money supply in the economy is
also affected by the deposit amounts
which are kept in bank as reserves.

Illustration on Bank “T-Account”
Assets Liabilities
ABC National Bank
Reserves
$10.00
Loans
$90.00
Deposits
$100.00
Total Assets
$100.00
Total Liabilities
$100.00

Bank “T-Account” Example
A “T-Account”
states that the
bank’s financial
position that
accepts the
deposits, keeps
the portion of
reserves and it
lends the rest.
Assets Liabilities
First National Bank
Reserves
$10.00
Loans
$90.00
Deposits
$100.00
Total Assets
$100.00
Total Liabilities
$100.00

The Money Multiplier
Assets Liabilities
ABC National Bank
Reserves
$10.00
Loans
$90.00
Deposits
$100.00
Total Assets
$100.00
Total Liabilities
$100.00

Assets Liabilities
ABC National Bank
Reserves
$10.00
Loans
$90.00
Deposits
$100.00
Total Assets
$100.00
Total Liabilities
$100.00
Assets Liabilities
XYZ National Bank
Reserves
$9.00
Loans
$81.00
Deposits
$90.00
Total Assets
$90.00
Total Liabilities
$90.00

Assets Liabilities
ABC National Bank
Reserves
$10.00
Loans
$90.00
Deposits
$100.00
Total Assets
$100.00
Total Liabilities
$100.00
Assets Liabilities
XYZ National Bank
Reserves
$9.00
Loans
$81.00
Deposits
$90.00
Total Assets
$90.00
Total Liabilities
$90.00
Total Money Supply = $190.00!

What shows the size of the money
multiplier?
The money multiplier
is nothing but the
reciprocal of the
reserve ratio.
 With a reserve
requirement (R) of 20%
 The multiplier shall be
5.
1
R
M =

References
Harcourt Brace & Company, ND, “ Different Measures of Money” reviewed on January 6 2015,
https://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=ppt+on+different+measures+of+mon
RBA, 2015, “Measuring Money” reviewed on January 6 2015, http://www.rba.gov.au/about-rba/index.html

visit @ casestudyhelp.com
Email id:
casestudyassignmenthelp@gmail.com

Money

Recomendados

Recomendados

Mais conteúdo relacionado

Mais procurados

Mais procurados (19)

Semelhante a Money

Semelhante a Money (20)

Último

Último (20)

Money