in the money

Examples of in the money in the following topics:

• Chapter Questions

  • Defines the money multiplier and identify the parties who influence the money multiplier.
  • Calculate the change in the M1 definition of the money supply if the Fed purchases $50,000 in U.S. government securities.
  • Compute the change in the M1 definition of the money supply if the Fed sells $10,000 in U.S. government securities.
  • Calculate the change in the M1 definition of the money supply if a person deposits $1,000 in cash into his checking account.
  • Compute the change in the M1 definition of the money supply if a person withdraws $5,000 in cash from his checking account.

• Understanding the Cost of Money

  • The concept of the cost of money has its basis, as does the subject of finance in general, in the time value of money.
  • In other words, the concept of interest describes the cost of having funds tied up in investments or savings.
  • The cost of money is the opportunity cost of holding money in hands instead of investing it.
  • The financial compensation for saving it as against spending it is that the money value will accrue through the compound interest that he will receive from a borrower (the bank account or investment in which he has the money).
  • The cost of money is the opportunity cost of holding money in hands instead of investing it.

• Single-Period Investment

  • The time value of money framework says that money in the future is not worth as much as money in the present.
  • The difference between what the money is worth today and what it will be worth at a point in the future can be quantified.
  • The value of the money today is called the present value (PV), and the value of the money in the future is called the future value (FV).
  • There is also a name for the cost of not having the money today: the interest rate or discount rate (i or r).
  • In order to find the PV, you must know the FV, i, and n.

• Defining the Time Value of Money

  • The Time Value of Money is the concept that money is worth more today that it is in the future.
  • One of the most fundamental concepts in finance is the Time Value of Money.
  • It states that money today is worth more than money in the future.
  • If you chose to take the money in one year, you could still use it to buy the same TV, but there is a cost.
  • The rate that you must be paid per year in order to not have the money is called an Interest Rate (i or r).

• The Fed's Balance Sheet

  • We examine the Federal Reserve's balance sheet in this chapter and explain howfluctuations in the Fed's assets and liabilities affect the money supply.
  • Furthermore, fluctuations in the money supply impact the financial markets, such as bond and stock prices and the economic well-being of society.
  • Moreover, the Fed can directly influence the monetary base, and in turn, the monetary base influences the money supply.
  • We list the transaction on the next page in the T-account:
  • We show the transaction below in the T-accounts:

• Forms of Money

  • For example, prisoners use cigarettes as money in U.S. prisons, while people accepted vodka and bullets as payment in remote parts of Russia during the 1990s.
  • Its value as a good in non-money purposes equals its value as a medium of exchange.
  • Most central banks in the world today use fiat money.
  • In the United States, the Federal Reserve System has the authority to issue U.S. dollars, and the public cannot use this money for anything else.
  • However, a rapid expansion in the money supply could be drastic to an economy.

• Quantity Theory of Money

  • People's demand for money must equal the supply of money.
  • Furthermore, we solve for the velocity of money, shown in Equation 12.
  • Consequently, each U.S. dollar is circulated in the economy 15 times during the year.
  • Price level for the United States is in the numerator while the price level for the Eurozone is in the denominator.
  • For example, the real GDP is growing in Eurozone by 4% per year while the United States is experiencing a 3% real GDP growth.

• The Money Supply Multipliers

  • We define the money supply (M1) as the currency in circulation (C) plus checkable deposits (D), written as M1 = C + D.
  • We divide both the numerator and denominator in the fraction by D, shown in Equation 12.
  • Although the money multiplier relates the total monetary base to the money supply, the money multiplier also works for changes in the monetary base.
  • For example, if the Fed buys $100,000 in T-bills, then the monetary base increases by $100,000, expanding the M1 money supply by $280,000.
  • For example, if the Fed increased the monetary base by buying $100,000 in T-bills and the banks hold the entire excess reserves, subsequently, the money supply expands only by $100,000.

• Barter and Functions of Money

  • Variable E indicates the number of price ratios while n is the number of products produced in a barter system.
  • This function combines the "medium of exchange" and "unit of account" of money because contracts state debts in terms of a "unit of account" and borrowers repay using the "medium of exchange.
  • "Hence, this function of money is extremely important for business transactions that occur in the future.
  • People must trust money in order to accept it for payment.
  • In some countries, people do not accept torn, ripped, or faded money.

• Answers to Chapter 1 Questions

  • If the savers hide their money under the mattress, then they remove this money from the economy.
  • Inflation is continual increases in the average prices; GDP measures the total amount of production of all goods and services within the economy.
  • Barter is inefficient because it does not allow people to specialize in the production of goods and services.
  • Each function of money overcomes a problem with barter and allows people to specialize in the production of goods and services.
  • Transaction approach focus on any assets that are used as money in a transaction, while the liquidity approach defines any liquid assets as money.