Money and Commercial Banking

Goldsmith : profesi sebagai penyimpan barang

Barter : exchange of goods for other goods

Money

: commonly accepted medium of exchange or means of payment

Commodity Money :
Modern Money

Component of money supply

1. Transactions money
Coins
Paper currency
Checking accounts

:
: items that are actually used for transactions.

2. Broad money/asset money/near-money

Interest Rate

: The price of money

Interest rate : is the amount of interest paid per unit of time expressed as a
percentage of the amount borrowed.
Real vs Nominal Interest Rates
Nominal interest rates

: measure the yield in dollars per year per dollar invested.

Nominal interest rates

: is the interest rate on money in terms of money.

Real interest rates : measures the quantitiy of goods tomorrow for goods forgone
today.
: nominal interest rate minus the rate of inflation.
The Demand for Money
Money Function :
1. Medium exchange
2. Unit of account
3. A store of value

:
: by which we measure the value of things
: allows value to be held over time

Two sources of money demand

1. Transaction Demand
: people and firms use money as medium of
exchange
Money holdings are sensitive to interest rate : other things equal, as interest
rates rise, the quantity of money demanded declines.
2. Aset Demand
:

Banking and the Supply of Money

(499)
Financial intermediaries : which are institutions like commercial banks that take
deposits or funds from one group and lend these fund to other groups.
Balance Sheet : a statement of firms financial position at a point in time. (list
assets and liabilities)
Uniqueness : reserves assets banks hold in the form of cash on hand or funds
deposited by the bank with the central bank.
Fractional reserve bank
Steps to turn reserves to Bank money :
1. X
C

2.

Possible Excess Reserves

Major kind of investment (506):

1.
2.
3.
4.
5.

Money
Saving accounts
Government securities
Equities
Pesion funds

Rate of return : the total dollar gain from a security

The stock Market (508): is a place where the shares in publicly owned
companies are bought and sold.
A speculative bubble occurs when prices rise because people think they are
going to rise in the future.
Efficient Market Theory : You cant outguest the market

Qualification to the efficient market view : (512)

Personal Financial Strategies :
1.
2.
3.
4.

Lesson
Lesson
Lesson
Lesson

1
2
3
4

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Know thy Investment

Diversify, difersify, that is the law of prophet of finance
Consider common-stock index funds
Match your investments to your risk preference

Q-26 Central Banking & Monetary

Policy
1. What are the three major instruments of monetary policy ?
2. What is intermediate targets in managing money ? example?
3. What is the difference between transactions accounts and a non
transactions accounts?
4. Why central banks are particularly important in open economist?
5. What is the 5 steps of the Fed to slow the growth of output ?
6. How is the supply of money determined?
7. What is money markets?
8. What factors that influence Agregate Demand?
9. In which condition we could say that money is neutral?
10.What is The Federal Reserves central goal?