١

٢

BARTER

Commodity

money

٣

Money accepted by law

THIS NOTE IS LEGAL TENDER

FOR ALL DEBTS, PUBLIC AND PRIVATE

٤

Federal Reserve Bank

of Richmond

Federal Reserve Bank

of Richmond

Secretary of the TreasuryTreasurer of the United States

Number refers

to 5th district;

also corresponds

to the letter E

Have you ever stopped

to examine the

features of a dollar

bill?

٥

The Great Seal of the United States

the pyramid – a symbol of material strength and

endurance

the

American

bald eagle

٦

“ANNUIT COEPTIS” - He has favored our undertakings

What does the eye inside

the triangle represent?

“NOVUS ORDO SECLORUM”

A New Order of the Ages

Why is the pyramid unfinished?

٧

the former 13 colonies

The Executive Branch

The Legislative Branch

The Judiciary Branch

PEACE and WAR

Out of Many, ONE

٨

• Medium of exchange

• Store of value

• Unit of account

Liquidity property of moneyLiquidity property of moneyLiquidity property of moneyLiquidity property of money

٩

• M1 : transactions money

• M2 : broad money

or near monies

• M3 : large-denomination money

١٠

M1 = currency in circulation

+ demand deposits

+ travelers’ checks

+ other checkable

deposits

Transactions money

١١

Near Monies

M2 = M1

+ savings accounts

+ time deposits (< $100,000)

+ money market accounts

+ repurchase agreements

(<$100,000)

١٢

M3 = M2

+ time deposits

(>$100,000)

+ repurchase agreements

(>$100,100)

+ Eurodollars

١٣

• Commercial banks

• Savings and loan associations

• Life insurance companies

• Pension funds

١٤

• Fractional reserve banking system

• Reserves

• Legal reserve requirement

• Excess reserves

• Loans

١٥

Illustration of money creation

• Assume 20% legal reserve requirement

Suppose Nina deposits $1,000 in her checking account at Citibank.

T-account of Citibank:

______Assets________________Liabilities____________

Reserves $200 Demand deposits $1,000

Loans 800

١٦

• Kevin borrows $800 from Citibank, and buys a computer at CompUSA.

• CompUSA deposits Kevin’s check at Fleet Bank.

Fleet Bank’s T-account:

_____Assets________________Liabilities_____________

Reserves $160 Demand Deposits $800

Loans 640

١٧

• Vivian borrows $640 from Fleet Bank and buys a new TV set at Sears department store.

• Sears deposits Vivian’s check at Bank of New York.

T-account of Bank of New York:

______Assets____________________Liabilities_______

Reserves $128 Demand deposits $640

Loans 512

١٨

Total demand deposits after lending

and re-lending by banks

Banks Demand Deposits

Citibank $1,000

Fleet 800

Bank of New York 640

↓ ↓

+ other banks + additional deposits

___________

= $ 5,000 Total

١٩

Money multiplier (m) = 1 / required reserve ratio

= 1 / .20

= 5

Total demand deposits (M) = m x initial deposit

$5,000 = 5 x $1,000