20 Minute Keynote Challenge Money, Money, Money...

Your task: Using your workbooks, textbooks, and online sources create a keynote which answers your assigned question. Please cite your sources. The goals is to provide accurate, correct, and complete answers. These will be combined into one keynote and posted on our wiki.

Group 1: Min Soo, Tim, Yen Fang, Youyu Explain (in extreme detail) the three functions of money. Provide some examples.

3 Functions of Money Medium of Exchange Unit of account Store of value

Medium of exchange accepted by people portable uniform divisible

Standard of value familiar divisible accepted

Store of value durable have a stable value

Examples of money Precious metals, gem stones (gold, silver, etc) Currency (dollars & coins) Checks Cards

Source p. 183 Rainbow book p.229 Textbook

Group 2: Geon Ah, Paddy, Ching Ching Explain (in extreme detail) M1, M2, and M3.

M1, M2, M3 Ching Paddy Geon-Ah Ching Paddy Geon-Ah

M1 All currency (coins, paper money) supplied by the government Bank reservations are not included Also include checkable deposits supplied by commercial banks and saving institutes includes items that are used as medium of exchange ex)

M2 Broader measure of money stock Key economic indicator used to forecast inflation Everything included in M1 + savings deposits + small time deposits +money market deposit accounts (MMDAs) + non- institutional money market mutual funds (MMMFs) + certain other short-term money market assets

M3 Money that we can’t get our hands on But also includes M1 and M2 includes all components of M2 plus number of financial assets and instruments generally employed by large businesses and financial institutions ex) large time deposits, institutional money market funds, short-term repurchase, and other larger liquid assets funds

Citations Rainbow book. p. 187 Wikipedia. Welker’s Wikinomics. ey

Group 3: DJ, Kevin, Sarah Explain (in extreme detail) MV=PQ.

The Equation of Exchange

MV = PQ M = supply of money V = velocity of money (average number of times per year a dollar is spent on final goods and services) P = price level Q = physical volume of all goods and services produced (real GDP

MV = PQ MV represents total amount spend by purchasers of output PQ represents total amount received by sellers of that output Both MV and PQ = nation’s nominal GDP The dollar value of total spending has to equal the dollar value of total output

Stable Velocity GDP/M defines V V in the equation of exchange is relatively stable Stable means factors altering velocity (such as how frequently people are paid) change gradually and predictably and can be readily anticipated. Today velocity is higher than it was several decades ago Velocity does not change in response to changes in the money supply

Changes in M If the supply of money grows faster than the rate of real output (changes in Q), then there will be inflation in the economy A change in M causes a proportionate change in nominal BDP Thus, changes in the money supply allegedly have a predictable effect on nominal GDP (PxQ) An increase in M increases P or Q or some combination of both and a decrease in M has the opposite effect.

SourcesSources Old Econ textbook (McConnell Brue) p Macro Rainbow Book (Morton Goodman) Activity 36 p. 191