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Barter - is a type of trade in which goods or services
are directly exchanged for other goods and/or
services, without the use of money.
Commodity money
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This money takes the form of a commodity with intrinsic
value.
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Examples: precious metals: gold, silver, conch shells, barley, leather.
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It does not have intrinsic value, it has value because of decree.
Examples: Coins, currency, check deposits.
Standardized coinage
Fiat money (fiduciary money) is used as money because
of government decree.
Electronic money
Money is the set of assets in
the economy that people use to
buy goods and services from
other people.
 Money
has three functions
in the economy:
Medium
of exchange
Unit of account
Store of value
Currency is the paper bills and
coins in the hands of the public.
 Demand deposits are balances in
bank accounts that depositors can
access on demand by using debit
card or writing a check.
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M0: currency (notes and coins) in circulation and in
bank vaults, plus reserves which commercial banks
hold in their accounts with the central bank
(minimum reserves).
M0 is usually called the monetary base - the base
from which other forms of are created - and is
traditionally the most liquid measure of the money
supply;
M1: currency in circulation + checkable deposits
(checking deposits, officially called demand deposits,
and other deposits that work like checking deposits).
M1 represents the assets that strictly conform to the
definition of money: assets that can be used to pay
for a good or service or to repay debt.
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M2: M1 + savings deposits, time deposits
less than $100,000 and money market
deposit accounts for individuals. M2
represents money and "close substitutes" for
money. M2 is a key economic indicator used
to forecast inflation.
M3: M2 + large time deposits, institutional
money-market funds, etc.
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The National Bank of Poland is the central bank
of Poland.
Its tasks are stipulated in the Constitution of the
Republic of Poland, the Act on the National Bank
of Poland and the Banking Act.
The fundamental objective of the NBP's activity is
to maintain price stability. Under the Monetary
Policy Strategy beyond 2003 drawn up by the
Monetary Policy Council, the objective of the NBP
is to stabilise the inflation rate at the level of
2.5% with a permissible fluctuation band of +/- 1
percentage point.
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monetary policy,
issue of currency,
development of payment system,
management of official reserves,
education and information,
services to the State Treasury.
The Council was constituted on February 17,
1998. It is composed of:
 a Chairperson, this being the President of the
NBP,
 nine members appointed in equal numbers by
the President of the Republic of Poland, the
Sejm and the Senate.
 Members of the Council are appointed for a
term of six years.
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The Federal Reserve (Fed) serves as the
nation’s central bank.
 It
is designed to oversee the banking system.
 It regulates the quantity of money in the
economy.
 It was created in 1914 to restore confidence in
the nation’s banking system.
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The Structure of the Federal Reserve System:
 The
are:
primary elements in the Federal Reserve System
1) The Board of Governors
2) The Regional Federal Reserve Banks
3) The Federal Open Market Committee
Regulates banks to ensure they follow
federal laws intended to promote safe
and sound banking practices.
 Acts as a banker’s bank, making loans
to banks and as a lender of last resort.
 Conducts monetary policy by
controlling the money supply.
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 NBP
has three tools in its
monetary toolbox:
Open-market
operations
Changing the reserve requirement
Changing the discount rate
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The National Bank control of the money supply
is not precise.
The National Bank must wrestle with two
problems that arise due to fractional-reserve
banking.
 National
Bank does not control the amount of money
that households choose to hold as deposits in banks.
 National Bank does not control the amount of money
that bankers choose to lend.
Money creation is the process by which money is
produced or issued. There are three different
ways to create money:
 manufacturing a new monetary unit, such as
paper currency or metal coins (money creation)
 loaning out a physical monetary unit multiple
times through fractional-reserve lending (credit
creation)
 buying of government securities or other
financial instruments by central bank through
Open market operations (electronic creation)
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Reserves are deposits that banks have
received but have not loaned out.
In a fractional reserve banking system, banks
hold a fraction of the money deposited as
reserves and lend out the rest.
When a bank makes a loan from its reserves,
the money supply increases.
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The money supply is affected by the amount
deposited in banks and the amount that
banks loan.
 The
fraction of total deposits that a bank has to
keep as reserves is called the reserve ratio.
The Money Multiplier
How much money is created in this
economy? Suppose that reserve ratio=10%
Original deposit
First lending
Second lending
Third lending
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Total money supply
=$
=$
=$
=$
=
100.00
90.00 [=0.9 x $100.00]
81.00 [=0.9 x $90.00]
72.90 [=0.9 x $81.00]
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$1,000
The money multiplier (MM) is the
reciprocal of the reserve ratio:
With a reserve
The multiplier
MM = 1/r
requirement, R = 20% or 1/5,
is 5.
Problem of Bank Runs
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where:
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M1 C  D g 1
MM 
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M0 RC r  g
C – cash outside banking system
D – deposits
R – required reserves
r – reserve ratio
g - "Cash drain," the tendency of households to
hold part of any additional money as cash
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http://www.mhhe.com/economics/mcconnell
15e/graphics/mcconnell15eco/common/dot
hemath/complexmoneymultiplier.html
www.wikipedia.org
Czarny B. „Podstawy Ekonomii”, PWE, 2002
www.nbp.pl
http://windward.hawaii.edu/facstaff/briggsp/Macroeconomics/macrolectures.htm