Monetary policy and international trade: Monetary policy
Contents
7.2 Monetary policy
MIT: Veronica Guerrieri's "Principles of Macroeconomics, L16-L17: Monetary Policy"
- Read these lecture notes, which provide important details regarding attempts to manage the money supply and interest rates while achieving macroeconomic goals. As you are likely aware by now, monetary policy and fiscal policy are two instruments by which governments address economic expansions or contractions. As you progress in this course, keep in mind one instrument may be more effective in addressing those matters.
The Federal Reserve: "History of the Federal Reserve"
- Read this article for a chronological study of how the Federal Reserve System came into being.
7.2.1 Purposes of money
Principles of Macroeconomics: "Chapter 9, Section 1: What Is Money?"
- Read this section and attempt the "Try It” exercises at the end of the section. The three functions of money are: A medium of exchange, that is, a means of payment; A store of value, that is, a safe or vault for assets; and A unit of account (that is, the total cost of an item).
Principles of Macroeconomics: "Chapter 9, Section 2: The Banking System and Money Creation"
- Read this section and attempt the "Try It” exercises at the end of the section. The three functions of money are: A medium of exchange, that is, a means of payment; A store of value, that is, a safe or vault for assets; and A unit of account (that is, the total cost of an item).
MIT: Veronica Guerrieri's "Principles of Macroeconomics, L10: Money"
- Read these lecture notes, which provide information about the functions and drawbacks of money.
7.2.2 The supply of money
The Federal Reserve: "Federal Reserve Statistical Release"
- Read this report, which includes data on money stock measures, seasonally adjusted components of M1, and seasonally adjusted components of non-M1 and M2. This report by the Federal Reserve differentiates between the various levels of the money supply from one period of time to another. Read this report in order to learn about the growth and wealth of the United States' economy and perform some rough calculations of your own.
7.2.3 Money creation
Khan Academy: "Overview of Fractional Reserve Banking"
- Watch this video, which explains fractional reserve banking. Be mindful that total reserves are the checkable deposits that the public has placed in a commercial bank. Required reserves are a percentage of the checkable deposits that must remain in a commercial bank as required by the Federal Reserve. Required reserves are set by the Federal Reserve to protect banks from customers running on the bank, i.e., reserves protects a bank from customer panic. Excess reserves are a percentage of checkable deposits that a bank is authorized by the Federal Bank to lend out. Consequently, required reserves are deposits from which the banks earn a profit through the loan and repayment process.
Khan Academy: "Full Reserve Banking"
- Watch this lecture about full reserve banking.
Khan Academy: "Simple Fractional Reserve Accounting (Part 1)"
Khan Academy: "Simple Fractional Reserve Accounting (Part 2)"
- Watch both parts of this lecture about simple fractional reserve accounting.
John Petroff's "Macroeconomics, Chapter 10: Money"
- Read this chapter for a brief overview of money, including its definitions and functions. At a minimum, you will gain insight into its use as an alternative to bartering. This reading also prepares you for additional perspectives and the assessment below.
John Petroff's "Macroeconomics, Chapter 10 Quiz: Money"
- Click on the "Quiz" link at the bottom of the page and follow the instructions to take the quiz.
