TheEconomicWayofThinking12thEdition.pptVIP

“The Economic Way of Thinking”12th Edition Chapter 14: Money Chapter Outline Introduction Cigarettes as Money The Evolution of Money The Myth of Fiat Money The Nature of Money Today So How Much Money is Out There? The Creation of Money What Can Be Created Can Be Destroyed Chapter Outline Credibility and Confidence Banks Under Regulation: Legal Reserve Requirements The Fed as Monitor and Rule Enforcer The Tools Used by the Fed The Discount Rate Open Market Operations But Who is Really in Charge? Appendix: What About Gold? Introduction R. A. Radford British Economist WWII – POW (prisoner of war) Prisoners created an economy Cigarettes – Principal money or medium of exchange Cigarettes as Money WWII POW’s created a monetary system Why replace barter with money? Why use cigarettes as money? Cigarettes as Money Cigarettes were: Generally accepted Homogeneous（同质的） and durable Divisible into small units Red Cross maintained a supply Smokers create value Cigarettes as Money Disadvantages of cigarettes May not remain homogeneous Hand rolled（手工卷烟） vs. machine rolled（机器卷烟） Removal of tobacco from machine rolled to make hand rolled A heterogeneous（混杂的，异质的） money supply Creates uncertainty Reduces trading Cigarettes as Money Gresham’s Law（格雷欣法则） Bad Money drives Good Money out of circulation 2 units of money have same nominal value If in reality one is more valuable One with lower value will circulate One with higher value will be hoarded（窖藏，储藏） The Evolution of Money Money evolved to facilitate trade. Precious metals（贵金属） were the first accepted medium of exchange. But it is not easy to determine the true weight and fineness of the metal Coin（硬币） evolved to establish a standard measure. The Evolution of Money The coins had greater value than the metal because it reduced transaction cost. The person minting（铸造） the coin kept some of the metal as profit for minting – seignorage（铸币税）. Why put ridges（轧边） on the edge of minted coins? The Evolution of Money Goldsmiths（金匠） –