Chapter 29

Chapter 29 shifts from unemployment to focusing on the monetary system. Money is the set of assets that people use to to buy things from other people. Thus, money is a medium of exchange between buyers and sellers. Store of value are items that a person can use as a way to transfer purchasing power from now to the future. An item's liquidity is how easy it is to convert that asset into the medium of exchange of that economy. There are two types of money, commodity and flat. Commodity money is value that is in the form of a good that has intrinsic value. An example of this is gold. Flat money has no intrinsic value and is used by the government's law. One form of money is currency. Currency is the physical bills and coins. However, currency is not the only money asset. Demand deposits are another form of money assets that depositors of a bank can demand by writing checks. The federal reserve has 2 main jobs. The first being the regulation of banks and the health of the banking system. The second is the control of money supply, which is the amount of money available in the economy. Decisions made by the central bank are monetary policies. Reserves are deposits that banks contain, but do not loan out to others. If they were to hold all deposits in the reserve, then they would not influence the supply of money. Fractional reserve banking is the system in which banks hold only a small portion of the deposits as reserves. The amount of deposits it holds as reserves is called the reserve ratio.