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Money Today
2.5
2
1.5
1
0.5
0
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
Lectures in Macroeconomics- Charles W. Upton
Money Today
• Currency today consists of Federal Reserve
Notes.
Money Today
Money Today
• Currency today consists of Federal Reserve
Notes.
– Fiat money
– Legal Tender
Money Today
Money Today
• Currency today consists of Federal Reserve
Notes.
– Fiat money
– Legal Tender
– Meets three tests
• Medium of Exchange
• Storer of Value
• Unit of Account
Money Today
Money Today
• Currency today consists of Federal Reserve
Notes (and small change).
• Other Counties have similar systems
– Bank of England (£)
– Bank of Japan (¥)
– European Central Bank (€)
Money Today
Other Forms of Money
• Medium of Exchange
• Storer of Value
• Unit of Account
Money Today
Other Forms of Money
• Medium of Exchange
• Storer of Value
• Unit of Account
• Checking Accounts
– Demand deposits
Money Today
Other Forms of Money
• Medium of Exchange
• Storer of Value
• Unit of Account
• Checking Accounts
• Certificates of Deposit
– Not demand deposits
Money Today
Other Forms of Money
• Medium of Exchange
• Storer of Value
• Unit of Account
• Checking Accounts
• Certificates of Deposit
• Treasury Bills
– Mature in less than a
year.
Money Today
Other Forms of Money
• Medium of Exchange
• Storer of Value
• Unit of Account
•
•
•
•
Checking Accounts
Certificates of Deposit
Treasury Bills
Money Market
Accounts
Money Today
Other Forms of Money
•
•
•
Theseofare
not
Medium
Exchange
perfect
Storer of Value
substitutes. In
Unit of Account
some cases,
things like
checking accounts
are better or
worse than money.
•
•
•
•
Checking Accounts
Certificates of Deposit
Treasury Bills
Money Market
Account
Money Today
Other Forms of Money
•
•
•
Theseofare
not
Medium
Exchange
• Checking Accounts
perfect
Storer of Value
• Certificates of Deposit
substitutes.
In
The
upshot
Unit of Account is that • Treasury Bills
some
cases,
there is ambiguity • Money Market
things just
like what
about
Account
checking
accounts
constitutes
money.
are
better
or
Hence alternative
worse than
money.
definitions
.
Money Today
Two Definitions of Money
• M1
– Currency in the hands of the public
– Demand Deposits
Money Today
Two Definitions of Money
• M1
– Currency in the hands of the public
– Demand Deposits
• M2
– M1 plus
– Time deposits < $100,000 and
– Money market accounts
Money Today
The Monetary Base
• Mb
– Currency in the hands of the public
– Currency held by banks
– Bank deposits at the Federal Reserve
System
Money Today
The Money Supply as 2003,
in Billions of Dollars
(Averages of Daily Figures)
Definition
Amount
Monetary Base
$721.0
M1
$1,287.1
M2
$6,044.6
M3
$8,806.9
Money Today
The Money Supply as 2003,
in Billions of Dollars
(Averages of Daily Figures)
You are responsible for
Basic definitions
of Mb, M1, Amount
M2
Definition
Monetary Base
$721.0
You are
not responsible for
M
$1,287.1
1
$6,044.6
PreciseM2definitions of M1, M
2
M3
Actual numbers
on M1, M2, $8,806.9
Mb
Money Today
M1
• Currency in the hands of the public
• Transaction-account balances
– Demand deposits at commercial banks
– NOW and ATS accounts
– Credit union draft shares
– Demand deposits at mutual savings
banks
– Traveler's checks
Money Today
M2
• M1 plus:
– Savings accounts
– Time deposits of less than $100,000
– Money market mutual funds
Money Today
The Money Supply as 2003,
in Billions of Dollars
(Averages of Daily Figures)
Definition
Amount
Monetary Base
$721.0
M1
$1,287.1
M2
$6,044.6
M
1287
.
1
1
M
$8,806.9
M 1Multiplier


 1.785  1.8
M b 721.1
3
Money Today
M 2 6044.6
M 2 Multiplier The Money Supply
 as 2003,  8.382  8.4
in
Billions of Dollars
M
721
.
1
b
(Averages of Daily Figures)
You are Definition
responsibleAmount
Base
for Monetary
the notion
of a $721.0
M
multiplier,
not the $1,287.1
M
$6,044.6
exact numbers
M 1 1287.1
1
2
M
M 1Multiplier

3
Mb

 1.785  1.8
$8,806.9
721.1
Money Today
M 2 6044.6
M 2 Multiplier The Money Supply
 as 2003,  8.382  8.4
in
Billions of Dollars
M
721
.
1
b
(Averages of Daily Figures)
Definition
Amount
Monetary Base
$721.0
M1
$1,287.1
M2
$6,044.6
M
1287
.
1
1
M
$8,806.9
M 1Multiplier


 1.785  1.8
M b 721.1
3
Money Today
M1 Multiplier, 1959-2003
4
3.5
3
2.5
2
1.5
1
0.5
0
1959
1963
1967
1971
1975
1979
1983
Money Today
1987
1991
1995
1999
M1 Multiplier, 1959-2003
4
3.5
3
2.5
2
1.5
1
0.5
0
1959
1963
1967
1971
1975
1979
1983
Money Today
1987
1991
1995
1999
M2 Multiplier, 1959-2003
14
12
10
8
6
4
2
0
1959
1963
1967
1971
1975
1979
1983
Money Today
1987
1991
1995
1999
M2 Multiplier, 1959-2003
14
12
10
8
6
4
2
0
1959
1963
1967
1971
1975
1979
1983
Money Today
1987
1991
1995
1999
GDP/M1 Ratio, 1959-2002
10
9
8
7
6
5
4
3
2
1
0
1959
1963
1967
1971
1975
1979
1983
Money Today
1987
1991
1995
1999
GDP/M1 Ratio, 1959-2002
10
9
8
7
6
5
4
Sometimes
called M1
Velocity
3
2
1
0
1959
1963
1967
1971
1975
1979
1983
Money Today
1987
1991
1995
1999
GDP/M2 Ratio, 1959-2002
2.5
2
1.5
1
0.5
0
1959
1963
1967
1971
1975
1979
1983
Money Today
1987
1991
1995
1999
GDP/M2 Ratio, 1959-2002
2.5
2
1.5
1
Sometimes
called M2
Velocity
0.5
0
1959
1963
1967
1971
1975
1979
1983
Money Today
1987
1991
1995
1999
GDP/MB Ratio, 1959-2002
25
20
15
10
5
0
1959
1963
1967
1971
1975
1979
1983
Money Today
1987
1991
1995
1999
GDP/MB Ratio, 1959-2002
25
20
15
10
5
0
1959
1963
1967
1971
1975
1979
1983
Money Today
1987
1991
1995
1999
End
Data are from
Statistical Appendix of
Economic Report of the
President
©2005 Charles W. Upton.
All rights reserved
Money Today