5 Steps to a 5 AP Macroeconomics 2019

❮ 141

Money, Banking,

and Monetary Policy

KEY IDEA

IN THIS CHAPTER

Summary: People often think that economics is the study of money. While you

have already discovered that, strictly speaking, this is not the case, there is no

denying the critical role of money in any economic system in the exchange

of goods and services, employment of resources, and macroeconomic stabil-

ity. This chapter first briefly defines money, the functions that it serves, and

the market for it. Following a brief overview of the fractional reserve banking

system, we discuss money creation. We then focus on the tools of monetary

policy that the Federal Reserve uses to influence the macroeconomy. The

chapter concludes with a discussion of fiscal and monetary policy coordination

and how one school of economic thought sees the role of monetary policy.

Key Ideas

✪ Money as an Asset

✪ The Money Market

✪ The Money Multiplier

✪ Monetary Policy

11.1 Money and Financial Assets

Main Topics: Financial Assets, Functions of Money, Present Value and Future Value, Supply

of Money, Demand for Money, The Money Market, Changes in Money Supply

The paper and coin currency that we carry around in our pockets is typically used for one

thing: to buy stuff. Before we get into a more thorough discussion about money, let’s briefly

discuss financial assets other than the money in your pocket.

11

CHAPTER