Money Economists define money as “anything that is generally accepted in exchange for goods and services.” William McEchern, Economics, p. 599

Three Properties of Money Money serves as: A Medium of Exchange –Exchanges are made through the use of money. A Unit of Account –Prices are quoted in terms of money. A Store of Value –Money preserves value until it is used in an exchange.

A Medium of Exchange To function as a viable medium of exchange, money must: be generally accepted; have a high value for its weight; be divisible; and not be counterfeitable.

Official Measures of Money M1 –Currency in Circulation + Demand Deposits + Other Checkable Deposits + Travelers’ Checks M2 –M1 + Savings Deposits + Small time Deposits + Deposits in Money Market Mutual Funds M3 –M2 + Large Time Deposits

The Federal Reserve System (The Fed) Congress passed the Federal Reserve Act in This act led to the establishment of the Federal Reserve System in 1914.

The Fed As the nation’s Monetary Authority, the Fed attempts to ensure that growth in money and credit over the long run is sufficient to encourage growth in the economy in line with its potential and with reasonable price stability;

The Fed Seeks to adapt its policies to combat deflationary or inflationary pressures as they may arise; has the responsibility for utilizing the policy instruments available to it in an attempt to prevent national liquidity crises and financial panics.

The Structure of the Fed The Board of Governors –seven governors, 14-year terms Federal Open Market Committee –twelve members The Federal Advisory Committee –twelve members advising the BOG Federal Reserve Banks –twelve district banks in the U.S. Member Banks