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[Money] is a machine
FISCAL AND MONETARY POLICY for doing quickly and
commodiously what
would be done, though
less quickly and
commodiously, without
it.
● Characteristics:
♦ General acceptability (legal tender)
■ Note: Denominations of P .10 to P 1.00 not to exceed P 50.00 when used for payment
Denominations of P .05 not to exceed P 20.00 when used for payment
♦ Divisibility
♦ Malleability
♦ Convertibility
Coins P 200,000
Total private deposit P 600,000
Paper money P 800,000
Total government expenditures P 600,000
Demand deposit P 400,000
Total government deposits P 500,000
Money market P 200,000
Total foreign loans P 900,000
Total private loans P 800,000
Total foreign deposits P 300,000
● Bank Regulation
♦Deposit insurance
■ Eliminates the motive for customers to withdraw funds
because of bad news regarding the bank’s finances
♦Moral hazard
■ When an individual is insured against risk, he/she puts
forth little effort to avoid risk
■ Deposit insurance could make the banking system less
safe
● Bank Regulation
♦Bank Supervision
■Needed to reduce moral hazard problem
■Ensures banks take only sensible, defensible risks
■Controls the money supply
♦Reserve Requirements
■Helps control the money supply
Copyright
Copyright©© 2006 South-Western/Thomson Learning. All rights reserved.
Banks and Money Creation
Copyright
Copyright©© 2006 South-Western/Thomson Learning. All rights reserved.
Banks and Money Creation