Use of Money

• The uses of money include medium of exchange, unit of account, and store of value.
• Types of money include commodity money such as an item or product like gold or silver that has some type of value, representative money such as IOUs, and fiat money like the government said so and on why it has value.
• The characteristics of money include durability  portability divisibility uniformity scarcity and acceptability.

Money supply

M1:  made up of cash, coins, currency, travelers checks, and a demand/checkable deposits.  Demand/checkable deposits is the largest component.

M2:  consist of M1 + savings account 

M3:  M2 money + money market account + cd(certificate of deposit)

**  Liquidity means easy to convert to cash. (M2&3)

•  Balance sheet equals T account/chart.  It summarizes the financial position of a bank at a certain time. 
• Asset(own): required reserves, excess reserves, bank property, security bonds, and loans.
•  Required  reserves  is the percentage of DD in the vault 
•  Excess reserves is the remaining percentage of DD used for loans 
•  Bank property is usually a statement of the banks property values 
•  Security bonds are previously purchased bonds held by the bank as investments 
• Loans
•  Liabilities(owe): demand deposit/checkable deposits and net worth or owners equity. 
• dd/cd  is from the public 
•  Net worth or owners equity is the value of bank stocks as held by the public 

ER+RR = CD/DD

Fractional reserve banking system:  The banks have to keep a fraction of the total money supply that is held in reserve as currency.

Bonds can move two ways:
1. The fed  cells the banks and increases the amount
2. The Fed buys from the banks and decreases the amount

 Scenario#1
 A private citizen takes cash that they possess and puts it into a bank account.
 The cash just listen to the bank that is already part of money supply.
 The deposit is counted as a Bank liability
 Percentage must be placed into rr
 The remainder is place in ER
 The bank will want to lend all of the ER if possible
 The amount in ER is multiplied by the multiplier
 This will be assumed to become new loans in the banking system
This will be counted as the change in money supply

 Scenario #2
 The fed buys bonds back from the public
 This public now has new cash
 This new cash new loans
 Assume that the public put the cash into cd/dd

Scenario #3
 The fed buys bonds back from the member banks.
 The bank now has new ER
 No new money is needed to be placed into RR since this is not owed to the public