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Lecture # 01
Evolution of Money
Metallic Money
Standard Metallic Money
Token Metallic Money
Paper Money
Convertible Paper Money: Issued by SBP convertible to Gold
or Silver on demand i.e 5, 10, 50,100, 500, 1000 Notes
issued by SBP
Inconvertible Paper Money: Issued by Govt: without keeping
in reserve Gold and Silver i.e Rs. 1 in Pakistan
Credit Money
Amount of money borrowed or loaned out to a person
i.e Cheques, DD, Pay orders, Credit Card, Govt Bonds
An Overview of Money
Money is anything that is
generally accepted as a medium
of exchange.
Money as a means of payment,
or medium of exchange, is more
efficient than barter.
Money is not income, and money
is not wealth. Money is:
a means of payment,
a store of value, and
a unit of account.
An Overview of Money
Money as a store of value refers to
money as an asset that can be used to
transport purchasing power from one
time period to another.
Money is easily portable, and easily
exchanged for goods at all times. The
liquidity property of money makes
money a good medium of exchange as
well as a store of value.
i.e currency notes vs diamonds or
paintings
An Overview of Money
Money also serves as a unit of account,
or a standard unit that provides a
consistent way of quoting prices.
Commodity monies are items used as
money that also have intrinsic value in
some other use. Gold is one form of
commodity money.
Fiat, or token, money is money that is
intrinsically worthless.
Legal tender is money that a
government has required to be accepted
in settlement of debts.
20
100
Deposits
Loans
90
10
Net worth
110
110
Total
Total
LIABILITIES
Reserves 0
0 Deposits
Panel 2
ASSETS
LIABILITIES
Panel 3
ASSETS
LIABILITIES
ASSETS
LIABILITIES
Panel 3
ASSETS
LIABILITIES
Reserves 100
100 Deposits
Reserves 100
Loans 80
180 Deposits
Reserves 20
Loans 80
100 Deposits
Reserves 80
80 Deposits
Reserves 80
Loans 64
144 Deposits
Reserves 16
Loans 64
80 Deposits
Reserves 64
64 Deposits
Reserves 64
115.20 Deposits
Summary:
Bank 1
Deposits
100
Bank 2
80
Bank 3
64
Bank 4
.
.
.
Total
LIABILITIES
Panel 2
51.20
.
.
.
500.00
Find M1 & M2
$1200
750
3500
550
Customer
has
deposited
$30,000 in the local bank. Prior
to this deposit, bank was just
meeting its RR. RRR is 25%
Find required increase in required
reserve A/c.
Find excess in reserve A/c if all this
deposit is placed in reserves A/c
Find Money Multiplier
Increase in the MS with this new
deposit
Money Multiplier * Increase in