ECON 304 Money and Banking Instructor: Bernard Malamud –Office: BEH 502 Phone (702) 895 –3294 Fax: 895 – 1354 » Website: faculty.unlv.edu/bmalamudfaculty.unlv.edu/bmalamud Office hours: MTWR 12 – 1:00 pm; and by appointment

The Financial System: An Overview 1.Money: pay for purchases and store wealth 2.Financial instruments (Stocks, Bonds,…) Transfer wealth from savers to investors Transfer risk Present value of financial instruments 3. Financial markets Buy and sell financial instruments 4. Financial institutions Intermediaries: Banks, Insurance Cos. 5. Central banks Monitor & secure the banking system Stabilize the macroeconomy

Bernanke’s Focus Inflation Targeting –Adjust “real” rate of interest with eye on pre- announced target rate of inflation –Wiggle room for other objectives/emergencies Response to mortgage/credit crunch –Transparency and accountability Joined by Mishkin on Board of Governors Other Governors: –Oppose Deflation Great Depression and clogged credit channel

Core Principles of Money and Banking Time has Value  Interest rate Time has Value  Interest rate Risk Requires Compensation Risk Requires Compensation Financial decisions are based on Information and on TRUST Financial decisions are based on Information and on TRUST Markets set prices and allocate resources Markets set prices and allocate resources Stability reduces risk and spurs enterprise Stability reduces risk and spurs enterprise

Money: What and Why Money 1.Anything generally accepted in payment for goods and services 2.One form of wealth … but not the only asset 3.Not the same as income Functions of Money 1.Medium of exchange 2.Unit of account 3.Store of value Evolution of Payments System 1.Precious metals like gold and silver 2.Paper currency (fiat money) 3.Checks 4.Electronic means of payment 5.Electronic money: Debit cards, Stored-value cards, Smart cards, E-cash

Measuring Money Liquidity : the ease with which an asset can be turned into a means of payment (money). Different definitions of money are based on degrees of liquidity. The Federal Reserve defines monetary aggregates: M1, M2, M3, L.

Link to Current Data

M2 Growth Rate and CPI Inflation Rate 2 years later.

Where to Find the Numbers